1099-R reports tax on already after tax distribution

Forum|Forum|3 years ago
March 10, 2023
2 replies
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I contributed $6000 to traditional IRA in March 2021 and another $6000 in Aug 2021, thinking that the first $6000 counts toward the 2020 limit. Today, I realized I forgot to report my 1099-R on my 2021 tax. While I was amending it, I found that 1099-R says my backdoor IRA distribution has $12000 taxable even though I contributed to traditional IRA with after-tax money. When I entered 1099-R into turbotax, it says "Good News: You don't owe extra tax on this money", but after I clicked "continue", the federal tax due went from $0 to $2100. It seems to think I have over contributed. Where did I make a mistake?

DanaB27

Please verify, that the contribution made on March 2021 was for 2020 (check your IRA statements from 2020 and 2021). If this was a nondeductible traditional IRA contribution for 2020 then you should have reported it on your 2020 return. Then you should have a 2020 Form 8606 with a $6,000 basis on line 14 and this amount gets entered on your 2021 tax return (steps 7 and 8 during the IRA contribution interview or steps 6 and 7 in the retirement section).

Please review the instructions below.

To enter the nondeductible contribution to the traditional IRA:

Login to your TurboTax Account
Click on "Search" on the top right and type “IRA contributions”
Click on “Jump to IRA contributions"
Select “traditional IRA”
Answer “No” to “Is This a Repayment of a Retirement Distribution?”
Enter the amount you contributed for 2021
Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had a nondeductible contribution before this tax year.
Enter your basis in the Traditional IRA from your 2020 Form 8606 line 14 (if you had a basis in the prior year)
On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount (if you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a warning and then a screen saying $0 is deductible).

To enter the 1099-R conversion:

Click on "Search" on the top right and type “1099-R”
Click on “Jump to 1099-R”
Click "Continue" and enter the information from your 1099-R
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”
On the "Review your 1099-R info" screen click "Continue"
Answer "yes" to "Any nondeductible Contributions to your IRA?" if you had any nondeductible contributions in prior years.
Answer the questions about the basis from line 14 of your 2020 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

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coolbeanAuthor

Hi,

Thanks for your response! I confirmed the contribution on March 2021 was indeed for 2020. You mentioned "then you should have reported it on your 2020 return", but when I searched how to report it, I found "

Form 5498 is for informational purposes only. You are not required to file it with your tax return.

This form is not posted until May because you can contribute to an IRA for the previous year through mid-April. This means you will have finished your taxes before you receive this form." my form 5498 was issued on 05/2021, so I don't understand how I could have reported on my 2020 return.

dmertz

Employee

Nondeductible traditional IRA contributions made for a particular year are required by the IRS to be reported on Form 8606 for that particular year.

dmertz

Employee

The Form 1099-R also has box 2b Taxable amount not determined marked to indicate that the IRA custodian has no way to know if you've made any nondeductible traditional IRA contributions, only you know that. You were required to report any nondeductible traditional IRA contributions on Forms 8606 for the years for which such contributions were made, with line 14 of each of those forms carrying forward to line 2 of the subsequent Form 8606. If you had reported everything correctly, the amount on line 3 of your 2022 Form 8606 will show $12,000.

TurboTax saying "Good News: You don't owe extra tax on this money" is just acknowledging the that code 2 in box 7 of the Form 1099-R means that the conversion is not subject to an early-distribution penalty, which is an excise tax.