TurboTax says I owe income tax for my backdoor Roth even though I used taxed earned income for the contribution

Forum|Forum|1 year ago
February 12, 2025
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In 2024, I contributed $7000 to my traditional IRA and then I did a backdoor Roth conversion my Roth IRA. Both accounts are in Fidelity. The $7000 that I contributed were after-tax dollars, so this should be a non-taxable event.

I received a 1099-R from Fidelity for the Traditional IRA account, which shows a gross distribution of $7000 (box 1) and taxable amount of $7000 (box 2a). When I go through the steps of entering everything in TurboTax, it comes out that the $7000 is being included in my taxable income, and it shows I owe taxes on it.

Is this an issue with how I'm entering it in TurboTax or is this an issue with the 1099-R classification from Fidelity?

TurboTax Deluxe Online

ThomasM125

It appears to be an issue with how you entered the transaction in TurboTax, assuming you made a non-deductible contribution to your traditional IRA. Otherwise, the rollover/ conversion to the ROTH IRA would taxable.

Make sure you entered a traditional IRA contribution in TurboTax for the $7,000 and indicate that it is non-deductible. Enter the Form 1099-R into the program and indicate that it was from a traditional IRA. Also indicate that you moved the money to another retirement account and did a combination of rolling over, converting, or cashing out the money, and enter the amount you converted to the IRA:

You also must enter the value of your IRA, SEP or Simple accounts at the end of the year when asked.

[Edited 3/26/25 at 9:04 AM PST]

@sarahjgreen14

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sarahjgreen14Author

Ok I think I got that figured out now.

If I selected 'I did a combination of rolling over and converting some or all of this money', it brought me to Separate your rollover and conversion, which didn't seem right because the only option was to delete the 1099-R and enter two separate ones.

The best option on the Tell us if you moved the money through a rollover or conversion page was to select 'I rolled over some or all of it to an IRA or other retirement account within the time limits (normally 60 days)'.

That brought me to Did you roll over all of this $7,000.00 (Box 1) to another retirement account?

I selected 'Yes, I rolled over $7,000.00 to another traditional IRA or retirement account (or returned it to the same account).' which brought me to the not owing taxes page!