Sign Up

Why sign in to the Community?

  • Submit a question
  • Check your notifications
or and start working on your taxes
cancel
Showing results for 
Search instead for 
Did you mean: 
Cowboy1987
Level 2

TIRA to backdoor Roth tax implications

2020 was the first year I ever had a traditional IRA (TIRA) . My financial advisor recommended that I start it in 2020 to convert it to a backdoor Roth IRA (I already had a Roth IRA).

 

My income in 2020 exceeded both the Roth contribution limit and the deduction for TIRA contribution limits. So, the money that went into the TIRA is post-tax dollars. 

 

It appears that when I enter the 1099-R data into Turbotax, I am taxed on the amount that converted from TIRA to Roth IRA. But since I that TIRA contribution was pre-tax, this seems to tax the TIRA contribution a second time when it converts to Roth IRA.

 

Is that correct? Does that make sense to anyone?

 

I am beginning to think that my financial advisor gave me bad advice, for he explained when we did it that I would only be taxed on whatever gain occurred during the one day it was in the TIRA, which was pennies. 

 

Thank you for your time and be well.

4 Replies
macuser_22
Level 15

TIRA to backdoor Roth tax implications

Sounds like you failed to first enter the non-deductible Traditional IRA contribution in to the IRA contribution  interview so it could be credited to you.

 

Enter IRA contributions here:
Federal Taxes,
Deductions & Credits,
I’ll choose what I work on (if that screen comes up),
Retirement & Investments,
Traditional & Roth IRA contribution.

OR  Use the "Tools" menu  (if online version under My Account) and then "Search Topics" for "ira contributions" which will take you to the same place.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
Cowboy1987
Level 2

TIRA to backdoor Roth tax implications

Thank you for the information.

 

I tried that.

 

Now Turbotax say I owe a penalty for making an excess contribution to a Roth because my income was too high.

 

I am so confused as why a backdoor Roth is considered a good idea.

macuser_22
Level 15

TIRA to backdoor Roth tax implications


@Cowboy1987 wrote:

Thank you for the information.

 

I tried that.

 

Now Turbotax say I owe a penalty for making an excess contribution to a Roth because my income was too high.

 

I am so confused as why a backdoor Roth is considered a good idea.


You DO NOT enter it as a *Roth* contribution.     It is a *Traditional* IRA contribution that you converted to a Roth. 

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
Cowboy1987
Level 2

TIRA to backdoor Roth tax implications

Thank you.

 

I think I am confused by the differences between recharacterization and conversion. TT seems to imply that a back door Roth is a recharacterization since it occurred in the same year as the Traditional contribution, but the form from my broker says it is a conversion.  TT handles a conversion without any penalty or additional tax language.

Dynamic AdsDynamic Ads
Privacy Settings
v