Why is my backdoor Roth conversion being taxed? I thought it was post-tax contribution.

Forum|Forum|3 years ago
February 23, 2023
1 reply
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In 2022 I opened a backdoor Roth with Schwab. I deposited $6000 of post-tax money into a traditional IRA and then converted all of it to a backdoor Roth. Later my broker deposited $100 into my Traditional IRA account as a reward for opening an account, so I went ahead and converted that as well. So I expected to pay taxes on the $100 overconversion. Now I received a 1099R with box 1 (gross distribution) $6100 , box 2a Taxable amount $6100. After entering these values in TT my tax burden increased almost $2000. I believe there's something wrong here since this is supposed to be post-tax money contributed.

Can someone please help clarify.

MinhT1

The backdoor Roth conversion must be entered in TurboTax in two steps:

- Enter your contribution of $6,000 to a Traditional IRA and mark it as non-deductible.

- Enter the conversion from a Traditional IRA to a Roth IRA and answer the interview in TurboTax.

By doing this, the $6,000 will not be taxed.

Please follow the detailed instructions in this TurboTax Help article.

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weafriqueAuthor

Thanks for the response. The link below was also very useful as it gave step-by-step direction with screenshots.

However, after entering all the Information for my backdoor conversion I realized that I incurred an in my state tax burden. Since this is post-tax contribution, it shouldn't have any state tax implications. My state is Pennsylvania. Any help to rectify this will be appreciated.

RobertB4444

Pennsylvania doesn't have any weird rules that would make this transaction taxable. Therefore, almost certainly something has gone wrong with the entry of the backdoor roth conversion. It's a tricky business, entering these weird transactions.

As annoying as it is I'm going to suggest going back through each step and double checking your entries. Something has told the Pennsylvania program that this transaction is taxable even though it isn't.

@weafrique

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