Turbotax thinks a previous year IRA contribution is a penalty

Forum|Forum|2 years ago
February 7, 2024
2 replies
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In Feb 2023 I contributed $12,500 to a traditional IRA. ($6,000 for 2022 and $6,500 for 2023).

I did backdoor Roth IRA for the entire amount. I have form 8606 from last year (2023) for the (2022) $6,000 contribution. My total basis in 8606 line 14 is $6,000

This year I get my 1099-R and it says I contributed $12,500 in 2023. Makes sense. But when I click through the deduction portion and add my $6,500 contribution (on it's way to report via backdoor), it's saying that because the total basis from last year (2023) is $6,000, and I made an excess contribution and therefore will owe a 6% penalty.

There is no money in the traditional IRA anymore, it's in the Roth IRA.

What do I need to do differently so the penalty does not show up? Surely there is a way to tell which contribution was for which year?

Best answer by dmertz

Forms 1099-R report distributions not contributions.

Your basis carried in from 2022 has nothing to do with how TurboTax treats your 2023 traditional IRA contribution. Make sure that you do not tell TurboTax that you "switched" (recharacterized) your traditional IRA contribution. You did a Roth conversion (which is what the Form 1099-R is reporting), not a recharacterization.

dmertzAnswer

Employee

Forms 1099-R report distributions not contributions.

cameronl21Author

Correct, I did click that I did not switch or recharacterize. Should I tell turbotax that I made TWO traditional IRA contributions last year? Will that clear up the $6,000 basis/penalty issue?

DianeW777

Please use the following instructions to enter a "Backdoor IRA" to ensure it is calculated correctly in TurboTax:

To enter the nondeductible contribution to the traditional IRA:

Open your return
Click “Deductions &Credits” on the top
Click "I'll choose what to work on"
Scroll down to “Traditional and Roth IRA Contributions” and click “Start”
Select “traditional IRA”
Answer “No” to “Is This a Repayment of a Retirement Distribution?”
Enter the amount you contributed of 6,500
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 nondeductible contributions before this tax year
Enter your basis in the Traditional IRA from your 2022 Form 8606 line 14 (since you had a basis in the prior year, should be $6,000)
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 "Federal Taxes" on the top and select "Wages & Income"
Click "I'll choose what to work on"
Scroll down and click "Start" next to "IRA, 401(k), Pension Plan (1099-R)"
Answer "Yes" to the question "Did You Have Any of These Types of Income?"
Click "I'll Type it Myself"
Choose "Form 1099-R, Withdrawal of Money from 401(k) Retirement Plans, Pensions, IRAs, etc."
Click "Continue" and enter the information from your 1099-R
Answer questions until you get to “What Did You Do With The Money” and choose “I moved it to another retirement account”
Then choose “I did a combination of rolling over, converting, or cashing out money.” and enter the amount next to "Amount converted to a Roth IRA account"
On the "Your 1099-R Entries" screen click "continue"
Answer "yes" to "Any nondeductible Contribution to your IRA?" since you had any nondeductible contributions in prior years.
Answer the questions about the basis from line 14 of your 2022 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

@cameronl21

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Don135

I’m in the same boat as OP where I made my 2022 contribution and 2023 back door Roth IRA conversions in 2023 contributing $6000 and $6500, respectively. So does that mean in form 8606, I would put 6500 in line 1 and 6000 in line 2 so that line 14 comes out as 0? Thanks ahead for the help.

dmertz

Employee

@Don135 , that's correct if your 2022 From 8606 has $6,000 on line 14. If you used TurboTax to prepare your 2022 tax return and you transferred your 2022 tax file into 2023 TurboTax to begin your 2023 tax return, TurboTax will already have the $6,000 on line 2 of your 2023 Form 8606 unless you deleted (or caused to be deleted) the information carried in from the 2022 tax file.