Backdoor Roth IRA issue with Turbo Tax

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Planner01
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Backdoor Roth IRA issue with Turbo Tax

Post by Planner01 »

My husband made a $13,000 contribution to his backdoor Roth IRA last year. $6000 on Jan 1 for 2020 and $7000 in May for 2021. He turned 50 last year. We now received a 1099 and 5498 forms for $13,000 that Turbo Tax thinks it was an excess contribution of $6,000. It also thinks we owe money. When I remove his IRA information and only add mine (I’ve had mine for years, so I wasn’t playing catch up like he was), the outcome number doesn’t change. But when I add his it says we owe thousands of dollars. What’s the problem?
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retiredjg
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Re: Backdoor Roth IRA issue with Turbo Tax

Post by retiredjg »

Was the 2020 contribution reported on the 2020 Form 8606 with the 2020 taxes? If not, you will need to do that before doing the 2021 Form 8606 or TT will think you have done it wrong.
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Duckie
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Re: Backdoor Roth IRA issue with Turbo Tax

Post by Duckie »

Planner01 wrote: Fri Jan 28, 2022 5:20 pm My husband made a $13,000 contribution to his backdoor Roth IRA last year. $6000 on Jan 1 for 2020 and $7000 in May for 2021. He turned 50 last year. We now received a 1099 and 5498 forms for $13,000 that Turbo Tax thinks it was an excess contribution of $6,000. It also thinks we owe money. When I remove his IRA information and only add mine (I’ve had mine for years, so I wasn’t playing catch up like he was), the outcome number doesn’t change. But when I add his it says we owe thousands of dollars. What’s the problem?
The problem is that somehow TurboTax thinks the $6000 contribution for 2020 made in 2021 was for 2021. Questions:
  1. When he filled out his Form 8606 for 2020 did he report the $6000 non-deductible contribution on line 1 which would have ended up on line 14?
  2. When he filled out his Form 8606 for 2021 did he report the $7000 non-deductible contribution on line 1 and the $6000 from line 14 on the 2020 form on line 2 of the 2021 form?
  3. Did he get a Form 5498 in May 2021 listing the $6000 contribution for 2020?
  4. What is on the 1099-R? What is in each box? I'm really focused on Box 7 but list them all.
Topic Author
Planner01
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Re: Backdoor Roth IRA issue with Turbo Tax

Post by Planner01 »

Duckie wrote: Fri Jan 28, 2022 5:38 pm
Planner01 wrote: Fri Jan 28, 2022 5:20 pm My husband made a $13,000 contribution to his backdoor Roth IRA last year. $6000 on Jan 1 for 2020 and $7000 in May for 2021. He turned 50 last year. We now received a 1099 and 5498 forms for $13,000 that Turbo Tax thinks it was an excess contribution of $6,000. It also thinks we owe money. When I remove his IRA information and only add mine (I’ve had mine for years, so I wasn’t playing catch up like he was), the outcome number doesn’t change. But when I add his it says we owe thousands of dollars. What’s the problem?
The problem is that somehow TurboTax thinks the $6000 contribution for 2020 made in 2021 was for 2021. Questions:
  1. When he filled out his Form 8606 for 2020 did he report the $6000 non-deductible contribution on line 1 which would have ended up on line 14?
  2. When he filled out his Form 8606 for 2021 did he report the $7000 non-deductible contribution on line 1 and the $6000 from line 14 on the 2020 form on line 2 of the 2021 form?
  3. Did he get a Form 5498 in May 2021 listing the $6000 contribution for 2020?
  4. What is on the 1099-R? What is in each box? I'm really focused on Box 7 but list them all.
1. Yes
2. Yes, doing that now
3. Yes
4. 13,000
Box 2b checked “Taxable amount not determined” “Total distribution”
Box 7 says “2” IRA/SEP
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retiredjg
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Re: Backdoor Roth IRA issue with Turbo Tax

Post by retiredjg »

With those answers, I would expect that TT would handle it correctly...if TT already knows about the 2020 contribution (from last year's inputs) and all the questions are answered correctly.

It is unlikely this actually is an excess contribution as I don't believe the brokerage would allow you do make two contributions for a single year without at least a warning.
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Duckie
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Re: Backdoor Roth IRA issue with Turbo Tax

Post by Duckie »

Planner01 wrote: Fri Jan 28, 2022 6:30 pm
Duckie wrote: Fri Jan 28, 2022 5:38 pm When he filled out his Form 8606 for 2021 did he report the $7000 non-deductible contribution on line 1 and the $6000 from line 14 on the 2020 form on line 2 of the 2021 form?
Yes, doing that now
You haven't finished yet. That's probably the issue.
Topic Author
Planner01
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Re: Backdoor Roth IRA issue with Turbo Tax

Post by Planner01 »

retiredjg wrote: Fri Jan 28, 2022 6:39 pm With those answers, I would expect that TT would handle it correctly...if TT already knows about the 2020 contribution (from last year's inputs) and all the questions are answered correctly.

It is unlikely this actually is an excess contribution as I don't believe the brokerage would allow you do make two contributions for a single year without at least a warning.
Ahhh so last year I had an accountant do our taxes. I no longer want to use her, so I am doing it myself using TT. Our taxes are simple, one job each, one property, nothing complicated.
Topic Author
Planner01
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Re: Backdoor Roth IRA issue with Turbo Tax

Post by Planner01 »

Duckie wrote: Fri Jan 28, 2022 6:52 pm
Planner01 wrote: Fri Jan 28, 2022 6:30 pm
Duckie wrote: Fri Jan 28, 2022 5:38 pm When he filled out his Form 8606 for 2021 did he report the $7000 non-deductible contribution on line 1 and the $6000 from line 14 on the 2020 form on line 2 of the 2021 form?
Yes, doing that now
You haven't finished yet. That's probably the issue.
I finished adding the numbers but don’t want to complete it because I want to fix this issue.
How’s my husband’s contribution a taxable event when the money came from after tax (savings from paychecks) and converted immediately to Roth (backdoor Roth)? Mine doesn’t trigger any changes in the total tax number. His decreases by a few thousand.
lstone19
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Re: Backdoor Roth IRA issue with Turbo Tax

Post by lstone19 »

Planner01 wrote: Fri Jan 28, 2022 5:20 pm My husband made a $13,000 contribution to his backdoor Roth IRA last year. $6000 on Jan 1 for 2020 and $7000 in May for 2021. He turned 50 last year. We now received a 1099 and 5498 forms for $13,000 that Turbo Tax thinks it was an excess contribution of $6,000. It also thinks we owe money. When I remove his IRA information and only add mine (I’ve had mine for years, so I wasn’t playing catch up like he was), the outcome number doesn’t change. But when I add his it says we owe thousands of dollars. What’s the problem?
Neither the 1099 nor the 5498 are relevant to what TT is not reporting as expected as the issue deals with the contribution while the 1099 deals with the distribution and the 5498 is not input into TT. Keep in mind that "backdoor Roth" is just slang for what is for tax purposes, two independent transactions - a non-deductible contribution and then a mostly non-taxable Roth conversion.

It sounds like you've told TT he contributed $13,000 in 2021. The 2020 contribution, even though made in 2021, would have been input to TT on your 2020 tax return. You should not be telling TT anything about making the 2020 contribution on the 2021 tax return.

When it comes to the distribution, If you used TT in 2020 and properly input the contribution there, and then transferred the 2020 tax data to start the 2021 tax return, TT will know you started the 2021 tax year with the $6,000 basis from the 2020 contribution.
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Duckie
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Re: Backdoor Roth IRA issue with Turbo Tax

Post by Duckie »

Planner01 wrote: Fri Jan 28, 2022 6:55 pm I finished adding the numbers but don’t want to complete it because I want to fix this issue.
Are you using TurboTax download or online? Which version, Deluxe, Premier, etc.?
Topic Author
Planner01
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Re: Backdoor Roth IRA issue with Turbo Tax

Post by Planner01 »

lstone19 wrote: Fri Jan 28, 2022 6:59 pm
Planner01 wrote: Fri Jan 28, 2022 5:20 pm My husband made a $13,000 contribution to his backdoor Roth IRA last year. $6000 on Jan 1 for 2020 and $7000 in May for 2021. He turned 50 last year. We now received a 1099 and 5498 forms for $13,000 that Turbo Tax thinks it was an excess contribution of $6,000. It also thinks we owe money. When I remove his IRA information and only add mine (I’ve had mine for years, so I wasn’t playing catch up like he was), the outcome number doesn’t change. But when I add his it says we owe thousands of dollars. What’s the problem?
Neither the 1099 nor the 5498 are relevant to what TT is not reporting as expected as the issue deals with the contribution while the 1099 deals with the distribution and the 5498 is not input into TT. Keep in mind that "backdoor Roth" is just slang for what is for tax purposes, two independent transactions - a non-deductible contribution and then a mostly non-taxable Roth conversion.

It sounds like you've told TT he contributed $13,000 in 2021. The 2020 contribution, even though made in 2021, would have been input to TT on your 2020 tax return. You should not be telling TT anything about making the 2020 contribution on the 2021 tax return.

When it comes to the distribution, If you used TT in 2020 and properly input the contribution there, and then transferred the 2020 tax data to start the 2021 tax return, TT will know you started the 2021 tax year with the $6,000 basis from the 2020 contribution.
Exactly right!!!! BUT we can’t use the accountant we used last year to file 2020 (she’s not very good as I caught mistakes that she had to fix), that’s why I am doing it myself this year using TT. How could I tell TT that the $6000 was for 2020?
Last edited by Planner01 on Fri Jan 28, 2022 7:55 pm, edited 1 time in total.
Topic Author
Planner01
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Re: Backdoor Roth IRA issue with Turbo Tax

Post by Planner01 »

Duckie wrote: Fri Jan 28, 2022 7:02 pm
Planner01 wrote: Fri Jan 28, 2022 6:55 pm I finished adding the numbers but don’t want to complete it because I want to fix this issue.
Are you using TurboTax download or online? Which version, Deluxe, Premier, etc.?
TurboTax download Deluxe
Katietsu
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Re: Backdoor Roth IRA issue with Turbo Tax

Post by Katietsu »

Planner01 wrote: Fri Jan 28, 2022 6:55 pm
Duckie wrote: Fri Jan 28, 2022 6:52 pm
Planner01 wrote: Fri Jan 28, 2022 6:30 pm
Duckie wrote: Fri Jan 28, 2022 5:38 pm When he filled out his Form 8606 for 2021 did he report the $7000 non-deductible contribution on line 1 and the $6000 from line 14 on the 2020 form on line 2 of the 2021 form?
Yes, doing that now
You haven't finished yet. That's probably the issue.
I finished adding the numbers but don’t want to complete it because I want to fix this issue.
How’s my husband’s contribution a taxable event when the money came from after tax (savings from paychecks) and converted immediately to Roth (backdoor Roth)? Mine doesn’t trigger any changes in the total tax number. His decreases by a few thousand.

Your husband made 3 separate transactions for tax purposes:
1: He made a $6000 2020 traditional IRA contribution. This does NOT get reported as a contribution in TurboTax tax year 2021. You should not be entering this as a contribution.

2. He made a $7000 2021 traditional IRA contribution. You should enter this. Assuming your income is too high for a deductible contribution, TT should automatically complete a Form 8606.

3. He completed a $13,000 Roth conversion. Enter the 1099-R and answer the follow up questions correctly and TT should handle this.

I believe that the last piece of the puzzle, reporting the prior year’s basis in the traditional IRAs, is addressed during those follow up questions. Go back to the 1099-R form and carefully answer the interview questions. If this does not work, there are a couple of alternative ways to enter the info in TT deluxe desktop. No need to “force” an entry.
Last edited by Katietsu on Fri Jan 28, 2022 7:12 pm, edited 2 times in total.
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retiredjg
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Re: Backdoor Roth IRA issue with Turbo Tax

Post by retiredjg »

Planner01 wrote: Fri Jan 28, 2022 6:52 pm
retiredjg wrote: Fri Jan 28, 2022 6:39 pm With those answers, I would expect that TT would handle it correctly...if TT already knows about the 2020 contribution (from last year's inputs) and all the questions are answered correctly.

It is unlikely this actually is an excess contribution as I don't believe the brokerage would allow you do make two contributions for a single year without at least a warning.
Ahhh so last year I had an accountant do our taxes. I no longer want to use her, so I am doing it myself using TT. Our taxes are simple, one job each, one property, nothing complicated.
That's probably it. You did not use TT last year so TT is clueless about the previous contribution.

You will have to force an entry into line 2 to enter the basis from line 14 on last year's form.
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retiredjg
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Re: Backdoor Roth IRA issue with Turbo Tax

Post by retiredjg »

My guess how to do that....

Search for forms and bring up Form 8606. Type in 6000 on line 2. See what happens.
Topic Author
Planner01
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Re: Backdoor Roth IRA issue with Turbo Tax

Post by Planner01 »

Katietsu wrote: Fri Jan 28, 2022 7:09 pm
Planner01 wrote: Fri Jan 28, 2022 6:55 pm
Duckie wrote: Fri Jan 28, 2022 6:52 pm
Planner01 wrote: Fri Jan 28, 2022 6:30 pm
Duckie wrote: Fri Jan 28, 2022 5:38 pm When he filled out his Form 8606 for 2021 did he report the $7000 non-deductible contribution on line 1 and the $6000 from line 14 on the 2020 form on line 2 of the 2021 form?
Yes, doing that now
You haven't finished yet. That's probably the issue.
I finished adding the numbers but don’t want to complete it because I want to fix this issue.
How’s my husband’s contribution a taxable event when the money came from after tax (savings from paychecks) and converted immediately to Roth (backdoor Roth)? Mine doesn’t trigger any changes in the total tax number. His decreases by a few thousand.
I believe that the last piece of the puzzle, reporting the prior year’s basis in the traditional IRAs, is addressed during those follow up questions.
Ah ha! THAT WAS IT!!!! Fixed. I needed to report the $6000 basis for 2020.

I can’t thank you enough. I’ve been at this for hours. Thank you again.
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Planner01
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Re: Backdoor Roth IRA issue with Turbo Tax

Post by Planner01 »

retiredjg wrote: Fri Jan 28, 2022 7:11 pm
Planner01 wrote: Fri Jan 28, 2022 6:52 pm
retiredjg wrote: Fri Jan 28, 2022 6:39 pm With those answers, I would expect that TT would handle it correctly...if TT already knows about the 2020 contribution (from last year's inputs) and all the questions are answered correctly.

It is unlikely this actually is an excess contribution as I don't believe the brokerage would allow you do make two contributions for a single year without at least a warning.
Ahhh so last year I had an accountant do our taxes. I no longer want to use her, so I am doing it myself using TT. Our taxes are simple, one job each, one property, nothing complicated.
That's probably it. You did not use TT last year so TT is clueless about the previous contribution.

You will have to force an entry into line 2 to enter the basis from line 14 on last year's form.
That was it. I needed to add the bases for the prior year. Thank you!
kmurp
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Re: Backdoor Roth IRA issue with Turbo Tax

Post by kmurp »

Could someone explain in more detail how to do this? I did an IRA contribution for 2020 in 2021 as well as one for 2021. My 1099-R for 2021 therefore shows a distribution of 14000 for 2021 which is two years of backdoor Roth conversions (2020 and 2021). Turbotax is giving me a tax hit with the 14,000 conversion.
Katietsu
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Re: Backdoor Roth IRA issue with Turbo Tax

Post by Katietsu »

kmurp wrote: Tue Mar 01, 2022 5:38 pm Could someone explain in more detail how to do this? I did an IRA contribution for 2020 in 2021 as well as one for 2021. My 1099-R for 2021 therefore shows a distribution of 14000 for 2021 which is two years of backdoor Roth conversions (2020 and 2021). Turbotax is giving me a tax hit with the 14,000 conversion.
Please look at my answer a few above.

It appears that you need to still report your 2011 contribution and your basis from “2020 and earlier”.
kmurp
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Re: Backdoor Roth IRA issue with Turbo Tax

Post by kmurp »

Katietsu wrote: Tue Mar 01, 2022 5:43 pm
kmurp wrote: Tue Mar 01, 2022 5:38 pm Could someone explain in more detail how to do this? I did an IRA contribution for 2020 in 2021 as well as one for 2021. My 1099-R for 2021 therefore shows a distribution of 14000 for 2021 which is two years of backdoor Roth conversions (2020 and 2021). Turbotax is giving me a tax hit with the 14,000 conversion.
Please look at my answer a few above.

It appears that you need to still report your 2011 contribution and your basis from “2020 and earlier”.
I understand that I need to somehow tell turbotax that but I'm struggling as to how to do it. I'm using the online version.
Katietsu
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Re: Backdoor Roth IRA issue with Turbo Tax

Post by Katietsu »

kmurp wrote: Tue Mar 01, 2022 6:09 pm
Katietsu wrote: Tue Mar 01, 2022 5:43 pm
kmurp wrote: Tue Mar 01, 2022 5:38 pm Could someone explain in more detail how to do this? I did an IRA contribution for 2020 in 2021 as well as one for 2021. My 1099-R for 2021 therefore shows a distribution of 14000 for 2021 which is two years of backdoor Roth conversions (2020 and 2021). Turbotax is giving me a tax hit with the 14,000 conversion.
Please look at my answer a few above.

It appears that you need to still report your 2011 contribution and your basis from “2020 and earlier”.
I understand that I need to somehow tell turbotax that but I'm struggling as to how to do it. I'm using the online version.
Have you gone through the deductions and credit section? Often people get concerned because the 1099-R is entered first and and their refund goes down/balance due goes up. But you just need to keep going from income into deductions.
kmurp
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Re: Backdoor Roth IRA issue with Turbo Tax

Post by kmurp »

I think I figured it out:
1. I answered: YES I made and tracked nondeductible contributions to IRA
2 That brought up a screen that asked me the basis as of 12/31/20
3. I entered 7000, which was my 2020 contribution that was made in 2021.
Hope I did it right.
bandoba
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Re: Backdoor Roth IRA issue with Turbo Tax

Post by bandoba »

kmurp wrote: Tue Mar 01, 2022 6:09 pm
I understand that I need to somehow tell turbotax that but I'm struggling as to how to do it. I'm using the online version.
Try the steps at https://thefinancebuff.com/how-to-repor ... botax.html. That's the best guide which explains it.
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