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

[harjindersingh2015]

Hi Dana,

You have helped my friend with similar situation and he has recommended that i seek your help with my situation.

I opened a Traditional IRA account on Apr 1st  2020 and  made a contribution of 6000 for the year 2019 and a contribution of 7000 (50+) for 2020. I simply parked the money in the account.

On Apr 20th, I used backdoor IRA method to roll my both the contributions to ROTH IRA.

When i filed my 2019 taxes, T-8606 was generated with following entries:

Line 1 = 6K

Line 2 = 0

Line 3 = 6K

Line 14 = 6K

All other lines were zero or blank.

I received form 1099-R for 2020 with Line 1 and 2a reading 13K. Line 2b says Taxable amount not determined. When i am filing taxes for 2020, 

Form 8606 being generated is shows following entries with $4550 showing as taxable amount.  

Line 1 = 7K

line 2 = 6K

Line 3 = 13K

Line 4 = 0

Line 5 = 13K

Line 13 = 8450* (with Asterix)

Line 14 = 4550

My contributions to Traditional IRA are non-deductible. My MAGI is high to be able to make deductible contributions to taxable IRA. I am failing to understand why 4550 is coming up taxable? 

Please guide me what am i doing wrong.  

Thank you!

[harjindersingh2015]

Hi Dana,

You have helped my friend with similar situation and he has recommended that i seek your help with my situation.

I opened a Traditional IRA account on Apr 1st  2020 and  made a contribution of 6000 for the year 2019 and a contribution of 7000 (50+) for 2020. I simply parked the money in the account.

On Apr 20th, 2020, I used backdoor IRA method to roll my both the contributions to ROTH IRA.

When i filed my 2019 taxes, T-8606 was generated with following entries:

Line 1 = 6K

Line 2 = 0

Line 3 = 6K

Line 14 = 6K

All other lines were zero or blank.

I received form 1099-R for 2020 with Line 1 and 2a reading 13K. Line 2b says Taxable amount not determined. When i am filing taxes for 2020, 

Form 8606 being generated is shows following entries with $4550 showing as taxable amount.  

Line 1 = 7K

line 2 = 6K

Line 3 = 13K

Line 4 = 0

Line 5 = 13K

Line 13 = 8450* (with Asterix)

Line 14 = 4550

My contributions to Traditional IRA are non-deductible. My MAGI is high to be able to make deductible contributions to taxable IRA. I am failing to understand why 4550 is coming up taxable? 

Please guide me what am i doing wrong.  

Thank you!

[macuser_22]

That indicates that your 2020 year end value of all Traditional, SEP and SIMPLE accounts was not zero so the non-deductible contribution are pro-rated between the 2020 distribution and the 2020 year end value.

The * indicates that the calculations were done on the "Taxable IRA Distribution Worksheet" and not the 8606.    See that worksheet for the calculations and line 4 for the year end value you entered.

[harjindersingh2015]

My Traditional IRA balance as of 12/31/2020 was 0.09 as the contributions of 6K for 2019 and 7K for 2020 were rolled over to Roth IRA on Apr 20th 2020. so how does it work?

thanks

[macuser_22]

You must have entered it wrong.

What is on  the 8606 lines 16, 17 & 18?

[harjindersingh2015]

Thank you for your responses Macuser_22. 

I went back and started from the start and i was able to straighten it. I had used amount from 5498 which i did not have to use because my IRA balance on 12/31/20 was zero. Once i went through the screens again, it fixed it. Thanks again for your time!

[psanand]

For 2021:

IRA Balance on 12/31/2020 = $0.40

IRA Bal as on 12/31/2021  = $ 0.49

For Year 2020:

Deposited in IRA on 1/4/2021 for year 2020 = 7K

Roth Conversion on 2/4/2021 for year 2020   = 7K

For Year 2021:

Deposited in IRA on 5/25/2021 for year 2021 = 7K

Roth Conversion on 6/8/2021 for year 2021   = 7K

For Year 2022:

Deposited in IRA on 2/4/2022 for year 2022 = 7K

Roth Conversion on 3/7/2022 for year 2022   = 7K

my 2021 tax return now has generate form 8606 and here are the details:

Line 1 = 14K

Line 2 = 7K

Line 3 = 21K

Line 4, 5, 6, 7, 8, 9, 10, 11, 12, 13 = blank

Line 14 = 21K

Line 15a, b, c  = 0.00 

Line 16 thru 25c  all are = blank

Line 17 = blank

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.

[psanand]

Hi DanaB,

I would appreciate it if you could help me by checking the details. Thank you!

IRA Balances:

IRA Balance on 12/31/2020 = $0.40

IRA Bal as on 12/31/2021  = $ 0.49

IRA Deposits & Conversions:

For Year 2020:

Deposited in IRA on 1/4/2021 for year 2020 = 7K

Roth Conversion on 2/4/2021 for year 2020   = 7K

For Year 2021:

Deposited in IRA on 5/25/2021 for year 2021 = 7K

Roth Conversion on 6/8/2021 for year 2021   = 7K

For Year 2022:

Deposited in IRA on 2/4/2022 for year 2022 = 7K

Roth Conversion on 3/7/2022 for year 2022   = 7K

my 2021 tax return now has generate form 8606 and here are the details:

Line 1 = 14K

Line 2 = 7K

Line 3 = 21K

Line 4, 5, 6, 7, 8, 9, 10, 11, 12, 13 = blank

Line 14 = 21K

Line 15a, b, c  = 0.00 

Line 16 thru 25c  all are = blank

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]

No, line 1 should only be $7,000. Do not enter the $7,000 contribution for 2022 on your 2021 tax return. The contribution for 2022 must be entered on your 2022 return. You should have gotten a warning about excess contribution since you entered $14,000 as contributed for 2021.

Line 3 should be $14,000.

Did you enter your 2021 conversion? You should have received Form 1099-R for the conversions on 2/4/2021 and 6/8/2021.

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 “Tell us if you moved the money through a rollover or conversion” and choose “I converted some or all of it to a Roth IRA”
5. On the "Your 1099-R Entries" screen click "continue"
6. Answer "yes" to "Any nondeductible Contributions to your IRA?" if you had any nondeductible contributions in prior years.
7. Answer the questions about the basis from line 14 of your 2020 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

Please be aware, that $7,000 converted on 3/7/2022 will be reported on your 2022 tax return.

@psanand

[bjago2016c]

Hi:

I personally feel you should not Amend taxyear 2019. Ask Turbo Tax legal if desired

[macuser_22]

---

@psanand wrote:

Hi DanaB,

I would appreciate it if you could help me by checking the details. Thank you!

IRA Balances:

IRA Balance on 12/31/2020 = $0.40

IRA Bal as on 12/31/2021  = $ 0.49

IRA Deposits & Conversions:

For Year 2020:

Deposited in IRA on 1/4/2021 for year 2020 = 7K

Roth Conversion on 2/4/2021 for year 2020   = 7K

For Year 2021:

Deposited in IRA on 5/25/2021 for year 2021 = 7K

Roth Conversion on 6/8/2021 for year 2021   = 7K

For Year 2022:

Deposited in IRA on 2/4/2022 for year 2022 = 7K

Roth Conversion on 3/7/2022 for year 2022   = 7K

my 2021 tax return now has generate form 8606 and here are the details:

Line 1 = 14K

Line 2 = 7K

Line 3 = 21K

Line 4, 5, 6, 7, 8, 9, 10, 11, 12, 13 = blank

Line 14 = 21K

Line 15a, b, c  = 0.00 

Line 16 thru 25c  all are = blank

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.

---

If there is a * (asterisk) next to line 15 then  lines Line 4, 5, 6, 7, 8, 9, 10, 11, 12, 13  will be blank and the calculation are done on the "Taxable IRA Distribution Worksheet" instead.   You need to look at that.

[psanand]

Thank you DanaB for quick response. I am following these steps but it is still showing line 1 as 14,000. My 1099-R box 1 2 both has 14000.00, Box 2b is checked (Taxable amount Not determined), Dist code 7 and IRA/SEP/SIMPL box is checked.

After entering 1099-R, next screen asks "What did you do with money from <company-name>?

I selected - "I moved money to another retirement acct", then under "Choose which of the following applies" two options:

1) I rolled-over all of this money to another traditional IRA or Other retirement Acct

2) I did a combination of rolling over, converting or cashing out

I selected Option 2 ( I did a combination of rolling over, converting or cashing out)

Then it asks, tell us how of 14,000.00 you moved and IRA, 401K or other retirement acct

I entered "Amount Converted to Roth IRA Acct 14,000.00

Please let me know what I am doing wrong here?

[macuser_22]

---

@psanand wrote:

Thank you DanaB for quick response. I am following these steps but it is still showing line 1 as 14,000. My 1099-R box 1 2 both has 14000.00, Box 2b is checked (Taxable amount Not determined), Dist code 7 and IRA/SEP/SIMPL box is checked.

After entering 1099-R, next screen asks "What did you do with money from <company-name>?

I selected - "I moved money to another retirement acct", then under "Choose which of the following applies" two options:

1) I rolled-over all of this money to another traditional IRA or Other retirement Acct

2) I did a combination of rolling over, converting or cashing out

I selected Option 2 ( I did a combination of rolling over, converting or cashing out)

Then it asks, tell us how of 14,000.00 you moved and IRA, 401K or other retirement acct

I entered "Amount Converted to Roth IRA Acct 14,000.00

Please let me know what I am doing wrong here?

---

Line 1 should be $7,000.   That should be entered automatically by TurboTax from the IRA contribution interview.    Review the IRA contribution interview and/or the "IRA Contribution Worksheet" line 1 that should be $7000.    (Did you also enter for your spouse and not mark it for spouse so it all went to you?)

The IRA contribution interview should have told yu at the end that you have an excess contribution since the  maximum is $7,000 if over age 50.

[psanand]

Hi DanaB,

I think it was my entries for Non-Deductible IRA under the "Deductions & Credit", 

Under "Tell us How much you contributed / Enter the total Amount you put into Traditional IRA for 2021 even if you later transferred some or all of it to a Roth IRA"

"Your Total 2021 Traditional IRA contribution" this is where I was entering 14,000.00 ( Deposited in IRA on 1/4/2021 for year 2020 = 7K & Roth Conversion on 2/4/2021 for year 2020 = 7K PLUS Deposited in IRA on 5/25/2021 for year 2021 = 7K & Roth Conversion on 6/8/2021 for year 2021 = 7K).
I changed this to 7000.00 since ONLY 7,000.00 out of total 14,000.00 dep in 2021 was for the year 2021. The other 7K was for the year 2020.

Now I see my form 8606 has:

Line 1 = 7K
Line 2 = 7K
Line 3 = 14K
Line 4,

Line 5 = 14K

Line  6, 7, 8, 9, 10, 11, 12 = blank

Line 13 = 14K (with and star *)  

Line 14, 15a,b, c = 0 (15c has a star *)

Line 16 & 17 both are = 14K

Line 18 = 0 (has a star *)
Line 19 thru 25c all are = blank

Please let me know, if this looks correct now?

[psanand]

Hi MacUser22

I am over 50 and didn't enter for spouse. Please see my updated post a min ago, I think it was the questions/interview under "Deductions & Credits" where I was entering 14K (total in 2021, but the 7K was for 2020 and Only 7K of that was for 2021). I corrected that and posted the info from revised/updated 8606-T. Pls check.

Thank you again to you and DanaB, you all are awesome and thanks for providing great support!