How To Report Backdoor Roth In TurboTax

By Harry Sit

I did a Backdoor Roth in 2011. This involves contributing to a non-deductible traditional IRA and immediately converting it to a Roth IRA. I received a 1099-R from the mutual fund company. Now I need to report this in the tax software.

If you did the Backdoor Roth for the first time in 2011, you may also be wondering how to enter it in your tax software. Although I use the software H&R Block At Home myself, I know most people still use TurboTax. It will probably be more helpful if I show you how to enter it in TurboTax.

The screenshots below are from TurboTax Online. If you use TurboTax installed on your computer, the screens may be similar.

Non-Deductible Contribution to Traditional IRA

First we enter the non-deductible contribution to the Traditional IRA.

From the top right, click on Tools.

Click on Topic Search.

Type ira in the search box. Find ira contributions in the topic list. Click on Go.

Check the box for Traditional IRA.

Double-confirm you contributed to a Traditional IRA.

It’s not a repayment of a retirement distribution.

Enter the contribution amount. I contributed $5,000.

Retirement plan coverage – yes or no. If you did a Backdoor Roth, it’s probably a Yes.

Excess contributions, why would you do that?

Non-deductible contributions? Yes.

Total basis as of December 31 of the previous year. If you started fresh, enter zero. Otherwise this will carry over from the number on your Form 8606 from last year.

The value of all Traditional IRA accounts as of December 31. If you already converted all of it, it would be zero.

Income too high, you knew that, right?

No deduction. Of course.

We are done for entering the non-deductible contribution to the Traditional IRA.

Convert Traditional IRA to Roth

When you convert the Traditional IRA to Roth, you receive a 1099-R in January. In this example, we assume by the time you converted, the money in the Traditional IRA had grown from $5,000 to $5,001.

Back to Tools on the top right.

Click on Topic Search again.

Type 1099-r in the search box. Find 1099-r distribution from an ira in the topics list. Click on Go.

Yes, you received a 1099-R.

Import 1099 if you’d like. I will just type it myself.

It’s asking which type of 1099-R it was. Choose the first one, the regular 1099-R.

If you enter the 1099-R yourself, pay attention to the code in Box 7 and the checkboxes. My 1099-R had Box 2b checked, code 02 in Box 7 and the IRA/SEP/SIMPLE box also checked.

I did not inherit it.

You converted 100% of it, didn’t you?

I didn’t recharacterize. Maybe you did?

After all these clicks, we have a 1099-R entry. Are we done yet?

Again? Didn’t I tell it already?

OK, find my IRA basis one more time.

This is a little different. I don’t have any Traditional, SEP, or SIMPLE IRAs left on December 31. I don’t have any outstanding rollovers or outstanding recharacterizations either. That’s how the Backdoor Roth works.

That’s the end of entering the Roth conversion.

Taxable Income from Backdoor Roth

After going through all these, would you like to see how you are taxed on the Backdoor Roth?

Click on the running meter for Federal Tax Due on the top right.

Click on Preview my 1040.

Scroll down to line 15a and 15b. Line 15a shows $5,001. That’s the amount you converted to Roth. Line 15b shows just $1 as the taxable amount. That’s the earning between the time you contributed to your Traditional IRA and the time you converted it to Roth. TurboTax should also generate a Form 8606. Unfortunately I don’t get to see it unless I pay.

Tah-Dah! You got money into a Roth IRA through the backdoor when you aren’t eligible for contributing to it directly. That’s why it’s called a Backdoor Roth. You will pay tax on a small amount of earnings if you waited between contributions and conversion. That’s negligible relative to the benefit of having tax-free growth on your contributions.

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Posted on January 15, 2012 under Taxes. Keywords: , .

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Comments

63 Comments on How To Report Backdoor Roth In TurboTax

  1. Leigh on January 16, 2012
     

    Thank you so much! That will be super helpful.

  2. MoneyCone on January 16, 2012
     

    Very informative TFB!

  3. David on January 28, 2012
     

    This is an awesome article!! Answer all the questions I needed to know. Thanks so much. I will refer to it when I do a backdoor roth again for the 2012 tax year. Thanks again

  4. Andy on January 28, 2012
     

    Can you show how to do it in H&R Block At Home? I can’t seem to do it right…

  5. RR on January 29, 2012
     

    Could you also / alternatively show how to do this with the Tax Act online software? So glad I found your site just in time!

  6. TFB on January 29, 2012
     

    @Andy @RR – As you can imagine, it takes a lot of time to put the screenshots together. I don’t think I have the energy do them all over again in a different software.

    The general steps are the same. There are two sides to this: a contribution and a distribution. Typically the software will have you enter the distribution on the income side before you enter the contribution on the expense side. In real life, you did the contribution first and the distribution second. It’s easier if you jump ahead and enter the contribution first, as I did here. This way when it comes to the distribution, i.e. conversion to Roth, the software will already know you made a non-deductible contribution and therefore the bulk of the distribution/conversion isn’t taxable.

    If you do it the way the software has it, you will see your tax goes up when you enter the 1099-R. Don’t worry. That’s because you haven’t entered the contribution yet. When you do, the tax will come down again.

  7. RR on January 31, 2012
     

    Thanks for the heads up; I was able to figure it out since the softwares are relatively similar.

  8. babar on February 3, 2012
     

    This is called spoonfeeding. Dude, you saved so much of my time. Now I can relax and enjoy the weekend :) Please set up a paypal account where your happy readers can donate for
    - at least the upkeep of this website
    - purchase all tax software

  9. TFB on February 3, 2012
     

    @babar – You are welcome. Tip jar is here: http://thefinancebuff.com/tip-jar

  10. Geoff on February 7, 2012
     

    @TFB – What if the conversion takes place after Dec. 31st? Is it reported the following tax year? Does the year of contribution matter?

    Here’s what happened to us:
    1. Contributed to Roth IRA’s mid 2011 (his and her, $5000 each)
    2. Unexpected income late in the year pushed us over the Roth limits (did not realize until last week when working on taxes)
    3. Recharacterized Roth contributions to Traditional Feb. 2012

    Tax software has told me to file form 8606 for non-deductible contributions and include a statement explaning the recharacterizations. So far so good, I think.

    But what if I now do this:
    4. Convert non-deductible traditional IRA’s to Roth before April 15th, 2012.

    Does that impact my 2011 tax return?

    Thanks,
    Geoff

  11. TFB on February 7, 2012
     

    If you convert in 2012 you report the conversion on 2012 tax return.

  12. kaz on February 22, 2012
     

    This seems great, but doesn’t point out that if there’s existing IRA’s (from rollovers, other deductible or non-deductible) some or all of conversion would be taxable. e.g. if one had $100,000 in a rollover already (deductible), and did a $5k contribution (non-deductible) and immediately rolled it over to a ROTH, the tax free ratio is about 4.8% (5,000 non-deductible basis divided by total IRA value of 105,000)… meaning most of the rollover IS taxable

  13. TFB on February 22, 2012
     

    @kaz – This post deals with how to report it after the fact. The proper way to do it when you have existing IRAs is in the link in the first sentence of this post.

    Backdoor Roth: A Complete How-To

  14. Dezlboy on February 29, 2012
     

    Just double checking… In 2010 I converted all my traditional IRA to Roth IRA and paid all the taxes in 2010. [trust me, there was a reason for paying them in 2010]. Before the conversion in 2010 my basis was $30K, but I just noticed on the 2010 Form 8606, line 14 has basis as $0. I assume that has something to do with the conversion being completed by Dec 31, 2010.

    Okay…..now for 2011, I did the backdoor Roth, and completed the conversion by Dc 31, 2011. Am I correct in saying that my basis is $0, just as your example?

  15. Praveen on March 1, 2012
     

    Thanks TFB for detailed and clear guide on reporting roth conversion of non-deductible ira. Very Helpful

  16. John on March 20, 2012
     

    Turbo Tax is less than helpful with reporting a backdoor Roth. Their online help is full of incorrect advice from “super-users” who seem to be under the impression the online version doesn’t allow you to do this. So thanks for the walkthrough as it helped me enormously. However, I still can’t quite get this to work in the online TurboTax as my situation is a little different from what you outline here.

    I doubled up a backdoor Roth in 2011. I converted over a $5,000 Trad IRA I took out for the 2010 tax year as well as converting another $5,000 Trad IRA I took out for 2011. I filled out the 8606 form giving me a $5000 basis for 2010. I have a 1099-R form for 2011 showing the distribution of $10,000 which I converted in full to a Roth IRA. However, when I follow the steps outlined here but substituting $10,000 for the conversion and $5,000 for the basis Turbo Tax still says I owe tax on $5,000. Any idea how to get around this or do I have to head over to HR Block to file my taxes this year?

    There are several online sites that outline this doubling strategy as within the rules. I also called the IRS for confirmation and they gave it their approval.

  17. Raghu on March 21, 2012
     

    Thanks for such detailed comments. The only difference in my situation is that all the money I contributed to my Traditional IRA for 2011 was done in 2012. So for the specific question that was asked “tell us how much of that was contributed between Jan 1, 2012 and April 17, 2012″ – my answer is all $5000. So now, my question is this – since this conversion actually happened in 2012 (it actuallly happened today – 3/12), should I report it in my 2011 return. And I didn’t receive any tax forms BTW and I was told that I will not receive them till January 2013.

    Thanks for taking the time and providing all the screenshots.

  18. TFB on March 21, 2012
     

    John – I just tried this in TurboTax Online. In the contribution part, I entered $5,000 for the 2011 contribution (as shown), $5,000 instead of $0 as the total basis as of 12/31/2010. In the 1099-R for conversion part, I entered $10,005 as the converted amount, again $5,000 in that “Let’s Find Your IRA Basis” screen for the total basis as of 12/31/2010. Then the 1040 preview shows $10,005 on line 15a, $5 on line 15b. No problem. What do you see on line 15b?

    Raghu – You only complete the contribution part for 2011. Wait until next year to complete the conversion part when you have the 1099-R.

  19. gunan01 on March 23, 2012
     

    TFB, thank you for answering Raghu’s question since I am in the same situation. I am confused about waiting till next year to report conversion. I want to report the conversion as if it happened in 2011, since I want to convert $5,000 more for 2012. How can I do this on TurboTax?

  20. TFB on March 23, 2012
     

    gunan01 – If you converted in 2012, you can’t report the conversion as if it happened in 2011 — it didn’t happen in 2011. You wait until 2013 to report it on the 2012 tax return. It doesn’t stop you from converting more for 2012 though. When you do your 2012 return next year, you can report $5,000 contribution and $10,000 in conversion. The two amounts don’t have to match.

  21. gunan01 on March 23, 2012
     

    TFB- thank you. You answered my question beautifully.

  22. John on March 24, 2012
     

    Thanks for the help again! It turns out I was doing it correctly after all. What I wasn’t taking into account was my wife wasn’t earing income for 2011 and this was leading to the $5000 amount showing up as taxable income on line 15(b). Elsewhere I was being given a tax deduction of $5000 (line 31 I think) as I was contributing to her Trad IRA with my own after tax money because she had no income of her own. Basically these two lines cancel each other out. It means I’m still left with no tax owed after essentially doing the backdoor Roth conversion four times in one year (two people; each for two years).

    After a bit of persistance I got through to an excellent Turbo Tax support person who walked me through the whole process and confirmed everything was correct. She’s taken note of a few of the more tricky parts of entering the information and said that they will do their best to make it clearer in their support pages.

  23. David on March 29, 2012
     

    Thank you for the Article! I was very helpful in reporting this year.
    I think i may have reported my “backdoor Roth” incorrectly in 2010. Looks like I clicked “converted” trad IRA to a Roth which is not the case. In doing so, TT is automatically pulling in $2,500 of the contribution to be taxed in 2011 and then will pull $2500 in 2012(Form 8606 line 20a & b). I can delete the $2,500 number that Turbo Tax is automatically pulling from my 2010 return. But I don’t want to file this year’s taxes and be audited because of the way it was entered in 2010.

    Anyone have any idea if it is an issue on deleting the $2,500 that is automatically generated from my 2010 forms?

    Again, I did the back door Roth in 2010, but based on the information TT is pulling, it looks like I entered the information wrong last year.

  24. David on March 29, 2012
     

    Please ignore my previous question(post #23).

    I found out I need to amend the 2010 8606 forms. Thank you for the post showing how to fill out the paper version of the 8606 form.

  25. Ben on March 31, 2012
     

    Thanks a ton, this was exactly the information I needed!

  26. Deb on April 4, 2012
     

    I have a traditional Ira because I changed employers in 2011 and moved my 401k into a traditional. I opened a new traditional and put $5,000 (non deductible) into the account on 4/3/12. I am converting that $5,000 into my Roth before 4/17/12. Will this cause a problem with my other traditional? How do I show all ths in Turbo Tax? Do I have to wait till I do the 2012 tax return to show the $5000 conversion? Thanks

  27. kim Gao on April 15, 2012
     

    In fact, I come to this article from a link that turbo tax people emailed to me. It really speaks of the quality of your article. If I followed the instruction in your article by entering 0 at the value of traditional IRA, TurboTax did show that the distribution from the conversion is not taxable (except the few dollars earning more than the contribution). However, now it shows that I have a loss of my traditional IRA of $30000 in schedule A line 23 (I guess it the maximum allowable), therefore, I now have a deduction of $21,303 in schedule A line 27, which is added to my itemized deduction. I guess the reason is that I also have a rollover IRA that has a balance of more than 0. I will appreciate if anyone can help me to get around it. Thanks. Kim

  28. TFB on April 15, 2012
     

    Kim – I showed zero because I didn’t have any balance in any traditional IRA after doing the conversion. If you have another rollover IRA, you must enter its value as of December 31 truthfully. That also means you will pay tax on your conversion. If you don’t want to pay that much tax on your conversion, you will have to undo the conversion by recharacterizing it, move your rollover IRA to a 401k or 403b plan, and redo your conversion. See

    How To Recharacterize An IRA

    Backdoor Roth: A Complete How-To

  29. Bart on April 16, 2012
     

    TFB – You are a king among men. Thank you for answering Raghu’s question. You helped me end a very long fight with TurboTax.

  30. MSD in DC on January 19, 2013
     

    Thank you! I was going to give up on TurboTax and do the forms by hand after all the problems I had with this. TT owes you money for providing this information!

  31. Sam on January 28, 2013
     

    This may need to be updated for TurboTax 2012.

    When get to the part where it asked about non-deductible contributions and cost basis, it specifically calls out whether I had non-deductible contributions for 2011 and before, not taking into account 2012. Now I’m confused how I designate the IRA contribution as non-deductible (even though it figured out I couldn’t have the deduction due to my income anyways).

  32. jon on January 28, 2013
     

    to “Sam” from earlier today. The above works in 2012 also with some slight changes. When it asks about non-deductible contributions prior to 2011, not taking into account 2012, say “no”.

    Check the Preview of your tax forms. It still works it out correctly, if you input your 2012 contribution and conversion also.

    In my case, I made a $5k non-deductible and converted it the next day. I had 3k of existing deductible contributions in the same ira, that was also converted. I put in the 5k contribution from this year, that it verified was non-deductible, and put in the 8k from the 1099-r, and when i looked at line 15 it showed… 3k taxable. (8k distribution – 5k of non-deductible)=3k of taxable.

    they could definitely make that easier and clearer to do.

  33. Tawnia on February 4, 2013
     

    gunan01 – If you converted in 2012, you can’t report the conversion as if it happened in 2011 — it didn’t happen in 2011. You wait until 2013 to report it on the 2012 tax return. It doesn’t stop you from converting more for 2012 though. When you do your 2012 return next year, you can report $5,000 contribution and $10,000 in conversion. The two amounts don’t have to match.

    Okay, so then why does Turbotax show that $10k that was backdoored for 2012 as taxable?

    So in 2011 I contributed to a non-ded IRA, $5k. In Jan 2012, I backdoored it to a Roth (we’re over the income limits).

    in Jan 2013, I contributed to a non-ded IRA, $5k, and then backdoored it within a week.

    I received a 1099R for 2012′ss withdrawal, and inputted all the current info. I think I might need to amend 2011′s taxes . . . . any idea? I have to go back and look, but I think I indicated I backdoored it in 2011 when it wasn’t done until 2012. I thought, because we have until 4/15 to get it done, it was fine that way?

  34. Dave on February 9, 2013
     

    I think there is an error in the IRS Pub 590, page 44 – the Worksheet 1-5. The note on the bottom aims to adjust for Roth conversions, but it does not work as intended. I found this out by running through TurboTax – I contributed $5000 to a Traditional in 2011, converted that ($5053) in 2012, made another $5000 contribution to the Traditional in 2012, and then converted that this year. I got a 1099-R for $5053. I would expect to see a $53 taxable amount on line 15 of the 1040, but instead it comes up with $168, based on the value of my Traditional on 12/31/12 (by running through that worksheet). There is something wrong with the instructions.. I don’t know how to report it though.

  35. Annette on February 9, 2013
     

    Does anyone have a guide for reporting a backdoor Roth using TaxAct.com? I received two 1099-R’s from Fidelity and the copy on TaxAct about how to balance it out is INCREDIBLY confusing and unclear. One mistake makes it look like you’re doubling a tax payment to the government.

  36. Harry on February 9, 2013
     

    Dave – The worksheet instructions are not wrong. It wasn’t $53 because you waited until 2012 to convert it and you made a fresh $5,000 contribution in 2012 and left it there as of 12/31/2012. The good news is having paid tax on $168 instead of $53, when you convert the 2nd $5,000 the taxable income would be $115 less. This article deals with contributing and converting in the same year and having a zero balance in the traditional IRA at the end of the year.

  37. Dave on February 9, 2013
     

    Harry – Really? I figured I would only owe tax on $53. Why would I be subject to pay tax on a 2012 contribution in a Traditional that I did nothing with? Isn’t that only taxed once I withdraw it?

  38. Harry on February 9, 2013
     

    Dave – The pro-rata rule treats all traditional IRAs as one pot, regardless when you made the contribution. The earnings are spread proportionately. Paying more now means paying less later. Not a big deal if you will convert your 2012 contribution again in 2013.

  39. EsKay on February 16, 2013
     

    TFB, Thanks for this helpful article. And sorry if somebody has asked the same question to you above. I contributed $5k (post tax money) to a new Trad IRA account in 2011. I did not have any Trad IRA contributions or account before this. While I was preparing to file taxes for 2011 in Feb 2012, I realized that i am not eligible for a Trad IRA deduction because of my income. I called Wells Fargo and told them to move my trad IRA contribution to a newly opened Roth IRA on Feb 2012. I thought I have taken care of this… I also told my tax accountant of this. Now I received 1099-R from my bank about the distribution and entire amount i.e., $5764 (with earnings) is taxable. How should I handle? My tax accountant who filed my taxes for 2011 did not file 8606. I am going to file now and thanks for your other article which explains about filing 8606.

  40. SamOmega on March 5, 2013
     

    Thanks for the great info. I’ve done this correctly for the tax year 2011. Now I’m attempting to do the same for 2012 tax year and Turbo Tax seems to be messing it up. I am using Turbo Tax Deluxe w/ State. Anyone else in the same boat at me? In short, Form 8606 Part 2 lines 16, 17 and 18 are not populated correctly!!

  41. Becky on March 16, 2013
     

    @SamO – I think I’m in the same boat. It looks like TurboTax is not subtracting my non-deductible basis from the amount I converted from Traditional to Roth (as you said, lines 16-18). It looked like at least 33 other people were having the same problem, judging by the TT question board.

    Since we’ve identified the issue, is there a way to edit tax forms directly using TurboTax?

  42. jordan on March 24, 2013
     

    i have same problem with turbo tax….since my income are high…i contribute $5000 into my non-deductiable ira acct…and converted into roth ira in few day later……When i enter into turbotax…it charge me $3125 as taxable….. can anyone help me with this issue…thanks

  43. jon on March 25, 2013
     

    The turbo tax web based version handles this fine.
    If you edit the distribution, you’ll be able to say that the distribution was converted to a ROTH.
    It than asks you the value of the account on a particular day, and figures it out.

    I added 5k non-deductible, to an IRA with 3k (deductible) already in it. converted the whole thing to ROTH, and TT figured out I owed tax on the 3k piece without problem.

  44. Rob on March 26, 2013
     

    Excellent article. I use H&RBlock Tax and I am having trouble with 8606. Do you have some examples/ for H&R Block? I contributed 5k to non-deductible and converted to Roth couple of days later with no gains, but had $99 dividends from a prior roll over to 401k posted to IRA at the end of year, complicating the matter. Any ideas on how to handle

  45. Harry on March 26, 2013
     

    Rob – Sorry I don’t have time to do screenshots. The idea is the same. You enter a contribution. Then you enter a conversion. The $99 remaining in the traditional IRA at the end of the year just means you will pay tax on say $98 with your $5,000 conversion and carry over $98 basis in the $99. When you do it again for 2013, you convert the $99 together with your new contribution and only pay tax on $1.

  46. Lars on March 29, 2013
     

    I am having a very difficult time with TurboTax 2012 with trying to correctly put in the info re a backdoor Roth IRA. My wife (high income) converted all her IRA’a to Roth IRA’s in 2010 and will pay the tax in 2011-12. In early 2012, she contributed $6K(over 50yo) to a traditional IRA for tax yr 2011 and 3 weeks later recharacterized that $6k into one of her Roth IRA accounts. Then in November 2012, she made another $6K contribution (both were non deductible) for tax yr 2012 to the traditional IRA account and recharacterized the entire amount one month later to one of her Roth IRA accounts. Hence, her Vanguard statement (1099r) shows $12000.26 (.26 income) in box one, gross distribution.
    Bottom line, Turbo Tax keeps saying that she has an excess contribution (because of her high income) and that she has to pay a penalty ($350+/-) each yr until the excess contrib. is removed. I have tried everything I can think to remedy this situation, but come up empty.
    Thanks for any help you might provide (you have done a terrific job w/ the website).
    Lars

  47. Harry on March 30, 2013
     

    Lars – This article was written last year with screenshot taken from TurboTax 2011. The fourth screenshot shows that her contribution made in early 2012 for 2011 should have been entered into TurboTax 2011. Check 2011 return to make sure Form 8606 shows $6k basis. She would not enter that $6k again in TurboTax 2012. The only contribution she would enter is the $6k contributed in November 2012. When it comes to conversion, the $12,000.16 from Vanguard is correct. Under the “Let’s Find Your IRA Basis” screen, she would enter $6k. The $6k basis from 2011 plus $6k new contribution for 2012 will offset the $12k distribution from Vanguard.

  48. Pete on April 4, 2013
     

    Lars, my financial advisor told me to use “contribution” instead of “conversion” for the Roth IRA. That, plus the screen shots in this article, helped me finish my return without the tax penalty.

  49. Nick on April 5, 2013
     

    Thank you so much Harry! I was getting all confused and couldn’t figure out a way to do this from TTs help pages or community . This is a topic that comes up quite frequently in financial talk shows and of course they cant say how it is done in TT or TaxCut or TaxAct or any DIY software. Clearly TT falls short in this.

  50. Christine on April 8, 2013
     

    I’m sorry… I read this article many times and followed the instructions to my best ability, using TT 2012. I’m still getting taxed on my $6000 backdoor conversion made in 2012. I did not make any contributions for 2012. Just converting the 2011 contributions made before April 2012 to a ROTH IRA. Please advise. Thanks.

  51. Christine on April 8, 2013
     

    Followup… just want to add to my post that if I answered ” … rolled over all of this money to another traditional IRA or other retirement account”, it removed the taxes. But I answered, “… converted all of this money to a Roth IRA account” and the additional taxes calculated stayed. Also, it told me “Good News: You Don’t Owe Extra Tax on This Money” yet it taxed me on the $6000. I’ve used this feature for years. This is the first year this is an issue!

  52. Becky on April 8, 2013
     

    Just to follow up on my comment from March 16 – I ended up throwing in the towel on TT and using TaxAct at the recommendation of someone on the Bogleheads forum. Not ideal, but I was too impatient to wait for TT. TA was a little clumsy in parts, but it was only $20 and, most importantly, dealt with the backdoor Roth correctly.

    Thanks for the excellent blog post and all the comments. They were a much needed sanity check as I muddled through this issue. :)

  53. Christine on April 8, 2013
     

    Harry – I figured how to get around to my issue for TT 2012 or perhaps I’m doing it correctly! I have spent 4 hours on this problem with TT. After I entered the 1099-R, it asked if I made any non-ded contributions. I said yes and tracked non-ded contributions. Then, I’m asked to enter the Cost Basis as of Dec, 31, 2011. I entered $6000 because I bought with non-ded of $6000 in 2011 and converted to ROTH in 2012. Therefore, on Dec 31, 2011, I still had $6000 in my Trad IRA. Then, the taxes were reduced to zero. I was following your instructions for TT 2011, but your question was also the cost basis as of Dec. 31, 2011, which then, would be zero because your contributions were for 2010 which you converted in 2011. TT must have changed the screens to ask for the cost basis prior (TT 2012) to conversion vs. after (TT 2011). Thank you so much for your site and your reader’s comments to help me through this.

  54. Harry on April 9, 2013
     

    Christine – On these screenshots from TurboTax 2011, under the Let’s Find Your IRA Basis screen, it asked about the basis as of 12/31/2010. You did it right by entering $$ there because the money you contributed for the previous year is counted as the basis as of the end of the previous year even though you actually contributed in the following year.

    Everybody will really do themselves a big favor by contributing to the IRA for the current year in the current year. Doing it retroactively just causes a lot of these confusions.

  55. Tibor on April 10, 2013
     

    Yes, the only way this works (sort of) is to put in the same amount or more as the cost basis. TT actually asks for the cost basis for 2011 and before–so if you have been using the backdoor method for a few years, the cost basis should be higher.

    Strangely, TT used to have a screen telling you it was keeping track of your nondeductible IRA contributions but that screen is nowhere to be found in the 2012 version.

    I still haven’t figured out how to prevent a TT penalty for having too high an income for a Roth.

    Sadly, the 2012 TT version is rather different from the screen shots above.

  56. Chaka on April 10, 2013
     

    IT’S A MIRACLE!! I FIGURED IT OUT!!

    OMG–after many hours I’ve figured out how TT lists a backdoor roth without penalties for having a high income for 2012!

    In “Wages & Income”>>Retirement Plans & SS>>IRA, 401K, etc., put in your 1099-R info. The next screen will say “Good News! You don’t owe extra tax on this money.” This refers to your having a “2″ in box 7 of the 1099-R. It means that you don’t pay a penalty for this distribution from the traditional IRA. In later screens, say that you “converted” all the money to a Roth IRA and left it in the Roth IRA. When it asks if you made any nondeductible contributions to your IRA, you must say “Yes, I made and tracked nondeductible contributions to my IRA.” Calculate your total cost basis at the end of 2011 (How much non-deductible contributions have you made in TOTAL until Dec 31, 2011?). Attach the explanation that says that;s how much it was. Value of your IRA as of Dec 2012, is zero. When you get to the summary page on income, this Roth IRA conversion will not show up under IRA distributions–taxable.

    NOT DONE YET> Next, In Deductions & Credits>>Retirement & Investments>>Traditional & Roth IRA contributions, write that you contributed to a Traditional IRA and you contributed $5000. NEXT IS THE QUESTION THAT CAN EASILY THROW YOU OFF: “Tell us how much you transferred.” Amount switched from Traditional IRA to Roth IRA is ZERO–This screen refers to a “recharacterization” NOT a “conversion.” The backdoor Roth is a conversion. After it tells you your income is too high to deduct the IRA, the screen about the penalty won’t come up!!

    YAY!!!

  57. Harry on April 10, 2013
     

    “NEXT IS THE QUESTION THAT CAN EASILY THROW YOU OFF: “Tell us how much you transferred.” Amount switched from Traditional IRA to Roth IRA is ZERO–This screen refers to a “recharacterization” NOT a “conversion.” The backdoor Roth is a conversion.”

    Exactly! See today’s post Traditional and Roth IRA: Recharacterize vs Convert.

  58. Paul on April 11, 2013
     

    Chaka (and Harry)-

    Thank you!!!!! Thank you!!!! Thank you!!!!

    I have spent hours and hours on TT trying to figure this out. It’s all in that question about how much you transferred. When TT asks, “How much did you switch from Traditional IRA to Roth IRA?” one would automatically believe TT is referring to the backdoor Roth. In the fine print it says “recharacterize.” Until I read Chaka’s excellent explanation, I made the erroneous assumption. (who would recharacterize from a trad IRA to a Roth anyway?–so I don’t even get the question they are truly asking in the first place)

    THANK YOU AGAIN!

  59. David on April 12, 2013
     

    Thanks for the information! I used it last year and it worked out great. I have a different situation this year. I made my IRA contribution in April(2013) to be applied to 2012 then did the “back door” Roth conversion. Using Turbo Tax, I reported my traditional IRA contribution info as you described above, but I am unable to enter the 1099-R information because I have been told the paper work/filing was in 2013, so I will receive it in the first quarter of 2014.

    Will this cause me any issue completing the “Backdoor Roth” next year for my 2012 contribution?

    I am thinking If I contribute another $5k to be applied to 2013, when I receive my 1099-R in 2014, it will show $10K(2012 and 2013 contributions). Any information will help here. Just want to be sure I file correctly.

  60. Harry on April 13, 2013
     

    David – There won’t be any issues. Just do it next year when you have the 1099-R. Under that “Let’s Find Your IRA Basis” screen, you enter the contribution you made in 2013 for 2012. If you use TurboTax again next year, it should remember and auto-populate it for you. If it doesn’t, just enter it yourself.

  61. Heather on April 15, 2013
     

    Harry, I have been a reader for many years, and have thoroughly read all the recent posts on recharacterizing and converting, but I am stumped. My husband prematurely contributed to a non-deductible TIRA in early 2012 (thinking that our MAGI would disqualify us from a Roth IRA contribution). It turns out, that we were just under the income limit for Roth and we can both contribute the maximum amount ($5K) for 2012. I went ahead and contributed $5K to my Roth IRA. Now, the question is, do I recharacterize his non-deductible TIRA? We are filing an extension, so I have until October to recharacterize it. Or would I be better off converting it (it seems weird to do a conversion or “back-door Roth” when you qualify to just go through the front door)? I know the difference between the two, but I’m not sure if it matters in this case? Does it? Also, his TIRA has actually decreased in value from $5K to ~$4500. Does that change the scenario? TIA!

  62. Harry on April 15, 2013
     

    Heather – Thank you for being a long-time reader. When the IRA has gains, it’s better to recharacterzie, because the gains would go to Roth untaxed. In his case it has losses. If he doesn’t have any other traditional IRA, including SEP or SIMPLE, he can also convert. Either way he won’t pay any taxes when the IRA has losses. Recharacterzie would be easier because he doesn’t have to keep track of basis.

  63. David on April 15, 2013
     

    AWESOME! THANKS! BLESS YOU!
    This was the BEST. I have talked to accountants with my IRA provider, etc., and NO ONE was able to walk me through the maze of entering my Backdoor IRA-Roth in TT the way you did! I would like to give you a big hug for helping me through this in the 11th hour ( and our IRS tax gurus a big slug for making me spend my beautiful spring weekend on this crazy stuff!)

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