Roth IRA conversion reporting - triggering taxable amount on deposit made with after tax money

[psanand]

I have entered 1099-R correctly but, TruboTax -2020 is still showing 8606 Line 18 as 7000 taxable income. Here is the situation:
1) IRA has .40 cents (or less than $1) as of 12/31/2019
2) Contribution made to IRA on Jan-2020 for year 2019 from after Tax money
3) Roth conversion done in March 2020 (about 35 days after deposit to IRA)
4) 2020 1099-R  Info -- box-1 7000, box-2a 7000, Box2b-Taxable Amt Not determined, box-7 code=7 IRA/SEP/SIMPLE box checked
I didn't report the deposit made to IRA in 2019 TurboTax as I don't see a 8606 for 2019, because it did not aske me the 'Non-deductible IRA contribution questions at all. I am checking even now and don't see that questionnaire showing up where I can report 2019 IRA deposit in 2020.

Q1 -Do I need to amend 2019 tax return?
Q2 - if Amend do I need to file as this does not make any changes in Tax Amt?

Q3 - Is it possible to account this for 2019 IRA deposit & Roth conversion in 2020 prior to Tax filing date, without amending my 2019 Tax Return?

Your help is much appreciated.

[ThomasM125]

The problem is that the 1099-R form has $7,000 in box 2(a) , taxable amount, so that will over ride everything else and the distribution will be listed as taxable, unless you say it was rolled over in TurboTax.

You may be able to get the 1099-R form corrected to leave box 2(a) blank, otherwise you will need to enter a deductible contribution of $7,000 to an IRA to cancel out the distribution, which is showing as a distribution from a deductible contribution to an IRA.

If your tax in 2019 doesn't change and there are no reporting 1099 forms in 2019, as it seems there are not, then you don't need to amend the 2019 tax return.

[psanand]

Thanks for pointing out the box 2a having 7,000 as taxable amount. I will talk to Retirement Plan Rep tomorrow on that.

One main question, based on that:

1) Contribution made to IRA on 1/27/2020 for year 2019 from after Tax money
2) Roth conversion on 3/2/2021

 since it was for 2019, do I need to complete IRS form 8606 for 2019 (i.e. to amend the return for 2019) or I just need to start 8606 from 2020?

BTW, I did same for 2020 also in 2021:

deposited into IRA on 1/4/2021 for 2020 and converted to Roth on 2/42021.

so this will be form 8606 for 2020 (or it will be next year in 2022 for Tax Return of year 2021)?

[DanaB27]

Yes, you will have to amend your 2019 return to report the basis on Form 8606. Please How do I amend a 2019 return in TurboTax?.

To clarify, you stated "Roth conversion on 3/2/2021" for 2019 contribution but above you said you converted the amount in March 2020. Therefore, you had a conversion in 2020 and again in 2021, correct?

You also will have a Form 8606 for 2020 to report the change in your basis and the 2020 conversion.

To enter the nondeductible contribution to the traditional IRA, you will do this for the 2020 tax return and 2019 amended return:

1. Open your return 
2. Click on "Search" on the top right and type “IRA contributions”
3. Click on “Jump to IRA contributions"
4. Select “traditional IRA”
5. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
6. Enter the amount you contributed
7. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
8. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had a nondeductible contributions before this tax year.
9. If you had a basis in the Traditional IRA before then enter the amount. (on your 2020 tax return you will enter the nondeductible contribution amount for 2019)
10. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount (if you had a retirement plan at work and your income is over a certain limit then it will just say nondeductible and trigger Form 8606)

To enter the 1099-R distribution/conversion: 

1. Open your return
2. Click on "Search" on the top right and type “1099-R”
3. Click on “Jump to 1099-R”
4. Click "Continue" and enter the information from your 1099-R
5. Answer questions until you get to “What Did You Do With The Money” and choose “I moved it to another retirement account”
6. 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"
7. On the "Your 1099-R Entries" screen click "continue"
8. Answer "yes" to "Any nondeductible Contribution to your IRA?"
9. Answer the questions about the basis and value

[psanand]

Thanks!

I checked with my brokerage firm and they confirmed that box 2a - 7K is correct as they don't know if it was moved to Roth or NOT. They say, this is the reason, the "Taxable Amount Not determined" box is checked so that Turbo tax asks questions to determine if that amount is taxable or not. And, since I had converted that to Roth IRA (and the deposit to IRA was with After Tax money), this should be coming as taxable amount.

I need help with proper steps in TurboTax to report the  Deposit to IRA and then converting to Roth between Jan & April 15, 2020 for the Tax year 2019.

As I have read in other replies, TurboTax 2019 (Premier) should ask questions and generate a 8606 form for  to record the Deposit to IRA in Jan 2020 and then converting to Roth prior to April 15, 2020 for the Tax year 2019.

Please help.

[DanaB27 · Accepted solution]

The conversion happened in 2020 therefore the conversion will go on your 2020 tax return:

1. Open your return
2. Click on "Search" on the top right and type “1099-R”
3. Click on “Jump to 1099-R”
4. Click "Continue" and enter the information from your 1099-R
5. Answer questions until you get to “What Did You Do With The Money” and choose “I moved it to another retirement account”
6. 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"
7. On the "Your 1099-R Entries" screen click "continue"
8. Answer "yes" to "Any nondeductible Contribution to your IRA?"
9. Answer the questions about the basis (nondeductible amount contributed for 2019 and prior years if applicable) and value

In your amended 2019 tax return you will enter these steps to create Form 8606 to report your basis (please see How do I amend a 2019 return in TurboTax?:(

1. Open your return 
2. Click on "Search" on the top right and type “IRA contributions”
3. Click on “Jump to IRA contributions"
4. Select “traditional IRA”
5. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
6. Enter the amount you contributed
7. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
8. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had a nondeductible contributions before 2019.
9. If you had a basis in the Traditional IRA before 2019 then enter the amount. 
10. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount (if you had a retirement plan at work and your income is over a certain limit then it will just say nondeductible and trigger Form 8606)

[psanand]

Hello Dana, MacUser22,

Thank you for all your help. I am able to generate the form 8606-T now for my 2019 and looks like this will resolve my 2020 taxes issue of that non-deductible IRA 7K  (IRA Dep in Jan 2020 and Roth conversion in March 2020 for the year 2019) getting taxes due to 2020 - 1099-R showing 7K as taxable amount.

One last question, now I have the form 8606-T created by amending the 2019 tax return, can I just send the 8606-T printed copy by mail to IRS? Or I need to print the entire return and mail? Is there any other form like 1040-X need to send to IRS, if I am sending 8606 only (for 2019).

[DanaB27]

Yes, you will have to send Form 1040X with any Form that got changed by amending your return, in your case Form 8606.

[psanand]

Hi DanaB,

I am doing my 2020 Taxes now, have non-deductible IRA Basis line 14 on 8606-T for 2019 is 7000. I did same IRA non Deductible 7K for 2020 also (IRA deposited on 1/4/2021 & Roth Conversion on 2/4/2021. 

Could you please help providing steps for reporting 7K for 2020 done in 2021 so that my Basis for 2020 gets reported correctly when I do my taxes for 2021?

[DanaB27]

Yes, please follow these steps to enter your nondeductible traditional IRA contribution on your 2020 tax return:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions”
3. Click on “Jump to IRA contributions"
4. Select “traditional IRA”
5. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
6. Enter the amount you contributed $7,000
7. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
8. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” 
9. Enter the $7,000 basis from 2019
10. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount.

[psanand]

I see TurboTax 2019 (premier) generated form 1040X and has my name/SSN info. However, I don't see any Info filled in any of the other section. Do I need to manually filled the information? If yes, what section I need to complete to file 8608-T for 2019?

[DanaB27]

No, you do not need to make any changes to the Form 1040-X that TurboTax created. Please put Form 8606 behind Form 1040X and mail this to the IRS to the address shown in the instructions.

Please see IRS address for 1040-X if needed.

[psanand]

Hello DanaB,

Thanks again for your help!

I have completed 8606 for 2019 & 2020 (as part of 2020 Taxes) and just to make sure I got it right. I would appreciate it if you can check and confirm:

For 2019:

IRA Bal as on 12/31/2019  = $ 0.01

Deposited in IRA on 1/27/2020 = 7K

Roth Conversion on 3/2/2020   = 7K

my 2019 amended return now has generate form 8606 and here are the details:

Line 1 = 7K

Line 2 = 0.00

Line 3 = 7K

Line 14 = 7K

All other lines are Zero or blank.

For 2020:

IRA Bal as on 12/31/2020  = $ 0.40

Deposited in IRA on 1/4/2021 = 7K

Roth Conversion on 2/4/2021   = 7K

my 2020 tax return now has generate form 8606 and here are the details:

Line 1 = 7K

Line 2 = 7K

Line 3 = 14K

Line 4 = 7K

Line 5 = 7K

Line 13 = 7K (with Asterisk)

Line 14 = 7K

Line 15a, b, c  = 0.00 (15c with Asterisk)

Line 16 = 7K

Line 17 = 7K

Line 18 = 0.00 (with Asterisk)

Could you please check and let me know, I have done it correctly?

Or if it is ok, I can post the completed form (without my personal Information) and you can help by checking?

Please let me know.

[DanaB27]

Yes, your Forms 8606 for 2019 and 2020 look correct. 

[psanand]

Thank you DanaB for your help!