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usr1099
New Member

TurboTax won't recognize my after-tax(nondeductible) IRA contributions

Hello,

 

In February 2020 I:

- Contributed $6000 after-tax money to my traditional IRA for year 2020

- Contributed $6000 after-tax money to my traditional IRA for year 2019
- Moved all $12000 after-tax money from traditional IRA

I would expect all of the below to have no tax implications.

In form 1099-R I set 'Taxable amount" to 0 , but when I try to file I get the error:

 

Form 1099-R : Taxable amount should not be zero if there is no prior year excess traditional IRA contribution on line 4 of the IRA Information Worksheet.
If I change the value from '0' to anything else I get fully charged tax on the $12000 - but these are after-tax funds.

What am I doing wrong here ? Is there another form that I have to fill out ? Did I mess up and what I did is not allowed ? Are there any penalties for what I did ?

Thanks!

 

6 Replies
BillM223
Employee Tax Expert

TurboTax won't recognize my after-tax(nondeductible) IRA contributions

Withdrawals from IRAs can be complicated when nondeductible amounts are included.

 

The biggest issue is that you cannot pick and choose what you withdraw from an IRA. For example, if you have $100,000 in various IRAs of which $10,000 was nondeductible contributions, you cannot just withdraw the $10,000 tax-free.

 

Instead, you must withdraw amounts proportionally. In this case, 10% of your IRA dollars were non-deductible. So if you withdraw $10,000, then 90% of it is taxable dollars and only 10% ($1,000) is nontaxable dollars.

 

Even more surprising, your IRAs are all collected together into a "virtual IRA" for this calculation. That is, you add all the totals in the IRAs and the amounts of the nondeductible contributions in the IRAs to make the total of the virtual IRA, as if you were withdrawing from a single super IRA.

 

After you enter your 1099-R and after TurboTax asks all sorts of questions about Disaster Distributions and all sorts of things, TurboTax will finally ask you "Any Nondeductible Contributions to [name]'s IRA?". Check YES.

 

The next screens will ask you things to to try to figure out what your basis is in your virtual IRA, so that it can calculate what your taxable distribution is.

 

And, yes, when you made nondeductible contributions, you need to complete a 8606 to track them.

 

Make sense?

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usr1099
New Member

TurboTax won't recognize my after-tax(nondeductible) IRA contributions

Ah Yes I should have specified that:
- The initial balance of traditional IRA was 0 

- I did the transactions mentioned above ( same day )
- At the end of the day the traditional IRA was again 0

The only way I found possible to get past the error is to set 0.01 on the 'Taxable amount' and set the basis of the IRA to 12,000. And I won't be charged any extra taxes ?
Did I do it right or am I going to get in trouble ? 

BillM223
Employee Tax Expert

TurboTax won't recognize my after-tax(nondeductible) IRA contributions

"Moved all $12000 after-tax money from traditional IRA" - moved it to what? A Roth IRA? For personal use?

 

In 2020, were you 59 1/2?

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usr1099
New Member

TurboTax won't recognize my after-tax(nondeductible) IRA contributions

Forgot to mention, yes, all $12000 to a Roth IRA where they have remained. 

usr1099
New Member

TurboTax won't recognize my after-tax(nondeductible) IRA contributions

I am < 50yr old

MaryM428
Level 6

TurboTax won't recognize my after-tax(nondeductible) IRA contributions

When you have not paid taxes on the money used to purchase a traditional IRA and then move that money to a ROTH IRA, you are responsible for the taxes on that money that were not paid when it was an IRA.  Rolling from traditional to ROTH IRA makes the funds taxable.

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