Backdoor roth conversion is showing I have a 6% penalty because of excess contributions. Why? I followed instructions.

[bythesea]

TT is telling me to enter my backdoor roth conversion in two places. I have the 1099-R and entered that in wages and income with a distribution code 2 (early distribution, exception applies). TT says I also have to enter it in deductions and credits as a contribution. It then tells me that I have a penalty but then somehow my tax owed is lowered. I know that I owe tax on the full amount that I moved from a traditional to a roth IRA. I wish I could just access the form 8606 myself but it won't let me. Help!

[DanaB27]

To confirm you entered a traditional IRA contribution (don't enter anything for Roth IRA) and then entered your Form 1099-R for the conversion? You can review the steps below. If you make nondeductible traditional IRA contributions and have no pre-tax funds in the traditional IRA then the conversion won't be taxable unless you had earnings.

To confirm, you had enough taxable compensation (earned income) to make the contribution?

For 2022 the total contributions you make each year to all of your traditional IRAs  and Roth IRAs can't be more than:

• $6,000 ($7,000 if you're age 50 or older), or
• If less, your taxable compensation for the year

To enter the nondeductible contribution to the traditional IRA:

1. Open your return
2. Click “Deductions &Credits” on the top
3. Click "I'll choose what to work on"
4. Scroll down to “Traditional and Roth IRA Contributions” and click “Start”
5. Select “traditional IRA”
6. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
7. Enter the amount you contributed
8. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
9. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had nondeductible contributions before this tax year
10. Enter your basis in the Traditional IRA from your 2021 Form 8606 line 14 (if you had a basis in the prior year)
11. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount (if you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a warning and then a screen saying $0 is deductible).

To enter the 1099-R conversion: 

1. Click "Federal Taxes" on the top and select "Wages & Income"
2. Click "I'll choose what to work on"
3. Scroll down and click "Start" next to "IRA, 401(k), Pension Plan (1099-R)" 
4. Answer "Yes" to the question "Did You Have Any of These Types of Income?"
5. Click "I'll Type it Myself"
6. Choose "Form 1099-R, Withdrawal of Money from 401(k) Retirement Plans, Pensions, IRAs, etc."
7. Click "Continue" and enter the information from your 1099-R
8. Answer questions until you get to “What Did You Do With The Money” and choose “I moved it to another retirement account”
9. Then choose “I did a combination of rolling over, converting, or cashing out money.” and enter the amount next to "Amount converted to a Roth IRA account"
10. On the "Your 1099-R Entries" screen click "continue"
11. Answer "yes" to "Any nondeductible Contribution to your IRA?" if you had any nondeductible contributions in prior years.
12. Answer the questions about the basis from line 14 of your 2021 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

[bythesea]

This is a conversion of my traditional ira to my roth ira. It is was not a contribution but a rollover. It is money that has been in my traditional ira for years that I decided to convert to my roth. So I know that money that I converted will be fully counted as income. I just want to enter this correctly. Why do I put it in as a contribution as well as putting in the form 1099-R in my income section? It isn't a contribution but a conversion.

[DanaB27 · Accepted solution]

You had indicated in your question that you performed a backdoor Roth which would be a nondeductible traditional IRA contribution and then the conversion to Roth IRA. But if you only made a Roth conversion then the contribution part does not apply and you will only enter your Form 1099-R with the steps below. Yes, it will be fully taxable if you only had pre-tax contributions.

1. Click "Federal Taxes" on the top and select "Wages & Income"
2. Click "I'll choose what to work on"
3. Scroll down and click "Start" next to "IRA, 401(k), Pension Plan (1099-R)" 
4. Answer "Yes" to the question "Did You Have Any of These Types of Income?"
5. Click "I'll Type it Myself"
6. Choose "Form 1099-R, Withdrawal of Money from 401(k) Retirement Plans, Pensions, IRAs, etc."
7. Click "Continue" and enter the information from your 1099-R
8. Answer questions until you get to “What Did You Do With The Money” and choose “I moved it to another retirement account”
9. Then choose “I did a combination of rolling over, converting, or cashing out money.” and enter the amount next to "Amount converted to a Roth IRA account"

[bythesea]

Thank you for clarifying that! My mistake in what to call it. Very helpful!