Backdoor roth IRA with small gain

Forum|Forum|2 years ago
February 12, 2024
1 reply
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Looking for help, please.

I have contributed $7,500 to Traditional IRA then converted to Roth IRA, since i expected my income to be over the limit ( I was laid off so it wasn't but that's how i did it in March 2023).

There was a small $10 gain between TIRA contribution and Roth IRA conversion ( which somehow i didn't pay attention to and converted the whole $7,510).

On my 1099 R the gain field is left blank , but for the taxable line it says $7,510, gain included).

Can you please help me with how to enter this in Turbo tax. Right now, if i leave gain blank I am getting the message of penalties of 6% and more complicated language.

I called Vanguard, since i read that i can leave the $10 for next year, but they told me that i am not actually over the limit, since my contribution is $7500 and the $10 is the gain, and i need to talk to Turbo tax to lean how to handle that.

Thank you for reading and any advise is appreciated.

Best answer by dmertz

You did a Roth conversion, not a recharacterization. Make sure that you enter your traditional IRA contribution and indicate that you did not switch the contribution to a Roth IRA.

Converting the entire $7,510 was the correct thing to do. This is reported by entering into 2023 TurboTax the code-2 or code-7 2023 Form 1099-R that reports the distribution from the traditional IRA and indicating that you converted the entire amount to Roth.

dmertzAnswer

Employee

You did a Roth conversion, not a recharacterization. Make sure that you enter your traditional IRA contribution and indicate that you did not switch the contribution to a Roth IRA.

bitjockey

I struggle with this every year. My wife and I each have back door Roths. She has a $214 gain that should be showing up on 1040 Row 4b, but it doesn't. In TTAX 2024, it'll ask "What did you do with the money from {finserv company}?

If you read the "rolled over" hyperlink, it says "You do not have a rollover when you transfer funds from a traditional IRA to a Roth IRA. This is called a conversion." I agree with that, but the only way I can get TTAX to do what I know needs to be done is to choose "{Name} rolled over all this money."

Otherwise, TTAX does all sorts of crazy things to my state return and otherwise. This transaction seems straight forward, but why is this so hard to get right with TTAX? AM I doing something wrong? I am not entirely sure I know what you mean by "indicate that you did not switch the contribution to a Roth IRA." On which screen am I indicating that?

AnnetteB6

Entering a backdoor Roth IRA conversion is a two-step process. First, you enter the non-deductible Traditional IRA contribution that was made. (During this process you might see the question asking if you changed your mind and 'switched' the contribution to a Roth.) Then, you enter the Form 1099-R reporting the distribution from the Traditional IRA.

If you are only seeing questions about whether the money was rolled over, versus a question about putting the money into a Roth IRA, it could be due to the distribution code in box 7 or not having the IRA/SEP/Simple box checked.

Take a look at the following TurboTax help article for some step-by-step guidance to enter the backdoor Roth IRA conversion:

How do I enter a backdoor Roth IRA conversion?

@bitjockey

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