Traditional IRA to Roth conversion

[Smurphette819]

Due to my increased income, in January 2020 my broker told me about the Backdoor Roth.  So, I opened a new traditional IRA and put $7,000 (I am 68) into it for 2019 and $7,000 for 2020. These funds were immediately converted into my Roth account, and the traditional IRA closed.  Since I could not get TT2019 to recognize a conversion from traditional to Roth, I designated the $7000 on my 2019 return as non-deductible.  My 1099-R from the broker for 2020 correctly shows a $14,000 normal distribution from my traditional IRA.  How do I enter this into TurboTax now so that it does not think I have a $7,000 excess contribution to my Roth for 2020?

[fanfare]

Did your advisor tell you that you had to start with a ZERO balance in all traditional  IRAs,

otherwise you will pay tax on this conversion of $14,000  from Traditional to Roth?

There is no Roth contribution involved in what you are doing. so you can't have an excess contribution.

[Smurphette819]

Yes, I had no other traditional IRA's until I opened one for this purpose.  I cannot find anything in TT about traditional to Roth conversions.

[DHart8]

I hope, by replying here, I'll see all the answers  you get.  I'll need the same next year.

I'm about to do a backdoor to a Roth too.  Having just completed my 2020 return, I'm going to do some "What If Scenarios" now. I want to determine the best amount to put into my new Roth. 

I just googled "tax form needed for backdoor roth ira", and got what looks to be several good hits. Good luck!

[fanfare]

@Smurphette819 

you started correctly with a non-deductible basis for 2019,

now do the same for traditional IRA contribution for 2020.

Your basis will be $14,000.

Then enter your 1099-R.

Hit Continue and tell TurboTax you converted it all to Roth IRA.

That's all there is to it.

[Smurphette819]

I wish it were so!  

My Form 8606 shows a conversion on lines 8 + 16 of 1$4000 in 2020, which is correct.

Since I can only convert $7000 for 2020, line 18 shows a taxable amount of $7000.

(If I override that to 0, my Federal Tax Due goes down, so TT -- and the IRS -- see that distribution as income.)

[macuser_22]

What is on your 8606 lines 1 & 2?

[Smurphette819]

Line 1 = $7000

Line 2 = 0

The problem is, I think, that there seems to be no way to explain that the $14,000 is for two years.

[DanaB27]

You will have to enter the 2019 nondeductible contribution on your 2019 tax return to report it on Form 8606.  If you didn't do this when you filed your 2019 return then you will have to amend your 2019 return.

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. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount.

Then on your 2020 tax return you will enter the 2020 nondeductible contribution:

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” 
10. Enter the $7,000 basis from 2019
11. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount.

To enter the 1099-R conversion: 

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

[macuser_22]

---

@Smurphette819 wrote:

Line 1 = $7000

Line 2 = 0

The problem is, I think, that there seems to be no way to explain that the $14,000 is for two years.

---

Line 2 should be your 2019 non-deductible contribution entered into the 1099-R interview when it asks if you tracked your non-deductible contributions and asks for prior year contributions.    You get that amount from the 2019 8606 form line 1,3 &14 that you should have when  you reported the $7,000 non-deductible 2019 contribution on your 2019 tax return. 

If you failed to report it in 2019 then you need to amend 2019 to get and file the 2018 8606 otherwise you forfeit the 2019 $7,000 basis.

This is what puts it on line 2---

[Smurphette819]

Thank you.  That worked.  Awesome!

BUT I am concerned that I did not indicate on my 1040-2019 that the taxable funds were converted into my Roth that year.  Does that mean I have to keep using that 2019 basis going forward?  Should I amend my 2019 return to show that?  If so, I am not sure how to do that, since I could not figure it out even with a lot of help last year.  TT this year has a blank for conversions, but I never found one last year.  And, how would that amendment affect the 2020 filing, if at all?  I guess this whole thing shows that one should not try to get around the rules via a backdoor!

[Smurphette819]

Sorry, in my thank you above, I meant to say "non-deductible" when I said "taxable."