The sooner you start saving for retirement, the more you will have to work once you have retired from the workforce. But this can be a complicated process, so people use software like TurboTax to help them track their tax contributions and exemptions.
However, TurboTax can be a bit tricky, and if you turn your traditional IRA into a Roth IRA, entering the change correctly is a tricky process. If you don’t do it right, your numbers probably won’t look right, with things like fines for excessive contributions being shown when they shouldn’t.
Let’s take a look at how to properly enter your Roth IRA backdoor conversion so you can be sure that the figures you are quoting are correct.
Report a Roth Rear Door IRA on TurboTax
First, you must deposit the non-deductible contribution made to your traditional IRA. This guide is written by TurboTax Online, but if you are using the desktop version, the procedure is very similar and should not cause any confusion.
- Open your tax return.
- In TurboTax Online, click Search and enter IRA contributions .
- Click on Go to .
- In the window Traditional IRA and Roth IRA , Click Traditional IRA.
- under wanted to contribute to a traditional IRA? , Select Yes .
- under Is this a refund of a retirement distribution? , Select no .
- In the window Tell us how much you contributed , Complete the amount you have contributed this year.
- under Did you change your mind? , Select no .
- Answer the other questions provided as they apply to your current tax situation.
He then tells TurboTax about the Roth rear door conversion he has made.
- Search per 1099-R .
- Click on Go to .
- In the window Its 1099-R , Click Yes and then continue. If it ends up on the screen Your 1099-R tickets , Click Add another 1099-R .
- You can choose to manually enter the details of your 1099-R form following the on-screen instructions, or you can import directly if you have a digital version.
- under Did you inherit the IRA from [IRA Custodian]? , Select no .
- Do you under what did he do with the money from [IRA Custodian]? , choose I moved the money to another retirement account (or returned it to the same retirement account).
- Then select I converted all that money into a Roth IRA account .
- You can finish answering the remaining questions accurately until you reach the window Your 1099-R tickets , Which means he has just reported his conversion of Roth from the back door.
Once you have followed these steps, you should have successfully entered the information that the software needs to properly calculate your tax return.
Check your tax results
If you want to make sure everything was done correctly, you can follow these steps to verify how taxes will be applied to your Roth IRA:
- Click on tax tools on the left side of the screen.
- Click on tools .
- On the screen of the Tool center , choose See tax summary .
- Click on Preview of my 1040 on the left side of the window.
In the section entitled 1040 Postcard, Line April , You must show your Roth IRA in the list IRA distributions .
As long as you have not earned income between when you contributed to your traditional IRA and when you performed your backdoor conversion to a Roth IRA, your sum subject to taxes it should be zero. If you had earnings between contribution and conversion, then they will still be subject to tax and will appear here.
There should be nothing in the titled section Appendix 1, Line 32 IRA Deduction .
Two things in this life are true: death and tax loopholes
If you earn too much to be able to make a standard contribution to a Roth IRA account, but still want to take advantage of the flexibility and increase post-retirement funding that one will provide, then a Roth back door is the way to go.
With this guide, you should be able to log in to TurboTax properly, so you can keep track of your contributions, deductions, and the amount of taxes you have to pay at the end of the fiscal year.