By Dr. James M. Dahle, WCI Founder
Reporting the Backdoor Roth IRA properly on Turbotax is unfortunately even more complicated than filling out Form 8606 by hand. The key to doing it right is to recognize that you report the conversion step in the Income section but your report the contribution step in the Deductions and Credits section. Since you generally do the income section first, you report the conversion before you report the contribution, even though you actually did the contribution before the conversion. At the end, you want to look at the Form(s) 8606 that Turbotax generates, just like you would check up on one filled out by an accountant.
Step 1: Reporting the IRA Conversion Step in Turbotax
Let's start at the very beginning and walk you through step by step. I'll be using Turbotax Home and Business 2019, but honestly, this hasn't changed in years and probably won't change for years. You will also probably want to use the download (desktop) version instead of the online version. If for no other reason, I find the “forms mode” to be super valuable. Also remember that this walkthrough assumes you did the Backdoor Roth IRA process “correctly” in the “normal” way, i.e., made a $6K contribution during the calendar year and did a $6K conversion immediately afterward. You'll need to make a few changes on your own if that isn't true. If you did not make your conversion correctly, you'll want to read through these posts:
How to Do a Backdoor Roth IRA Ultimate Guide
How to Fix Backdoor Roth IRA Screw-Ups
Now, let's dig in and get started.
First, you'll need to go to the personal section.
Then the income section.
In general, it's best to use Turbotax like a pro and move around it as you need to rather than going through all of their long lists of questions. If you get stuck, you can use the “guide me” option. But for now, check “I'll choose what I work on.”
Now you're on the Turbotax income menu. Scroll down to the Retirement Plans and Social Security section and click on the start button next to IRA, 401(k), Pension Plans (1099-R) line.
Vanguard sends us 1099s each year, so I'll check the box yes and hit continue.
The import feature from Turbotax is very nice, particularly for big long complicated lists of taxable account transactions. But a quick 1099 is no biggie. I can enter it faster manually than download it. I just pull out my 1099-R from Vanguard. . .
Yes, I know it's a 2020 1099. No big deal. The 2019 one looked exactly the same and so will the form for 2021. Note that there are a few cents reported in boxes 1 and 2. Feel free to round those to the nearest dollar on your taxes.
Now you just input that information into Turbotax. Click the first button on this page and hit continue.
Just transfer the information over. Box 2b deserves special attention. If Vanguard (or whoever) didn't check that box, then they had better have left box 2a blank or put a $0 in it. If not, have them correct the 1099. In general, you'll have a 2 in box 7 and the IRA box afterward should be checked too.
If you filled out the prior page right, this page should look about like this. Just hit continue.
It's not an inherited IRA, so you click the no box and continue on.
Since you didn't take the money out and buy a sailboat with it, click the first button. Since it was a Roth conversion, you click the second button in answer to the second question and hit continue.
If you are married, filing Married Filing Jointly, and your spouse is also doing a Backdoor Roth IRA, instead of hitting continue, hit “Add Another 1099-R” and go back through the previous questions to enter the information from your spouse's 1099-R.
You'll eventually come back to the same page. Now hit continue. Turbotax will ask you a few more questions.
Just hit “No, I didn't” and click continue.
Next, it asks about non-deductible contributions. Note that you'll see this question when you get to the contribution section too. Click yes and continue.
If you're doing your Backdoor Roth IRA “correctly” in the “normal” way, your basis at the end of the prior year should be $0. If yours isn't for some reason, put in your basis (i.e., non-deductible money put into the traditional IRA but not converted out of the IRA). Then hit continue.
This is an important box to get right, and it's important to make it zero too! This line goes directly to line 6 of Form 8606. If this number isn't $0, you're going to have your conversion pro-rated. Fill it in accurately, then hit continue.
Okay, you're now done with entering the conversion step into Turbotax. You're back on the Income Menu in Turbotax. If you scroll down to the Retirement Plan and Social Security section you'll see $6,000 ($12,000 if you did a Backdoor Roth IRA for your spouse too) next to the IRA, 401(k), Pension Plans (1099-R) line.
Step 2: Reporting the IRA Contribution Step in Turbotax
Now let's do the contribution step. First, let's go to the Deductions and Credits menu by clicking on Deductions and Credits at the top. Then click on “I'll choose what I want to work on.” You're now on the Deductions and Credits Menu.
Scroll down to the Retirement and Investments section and then click on the “Start” button next to the Traditional and Roth IRA Contributions Line.
It'll take you to this page.
If you're filing Single, it'll only give you one column of boxes, but if you're filing MFJ, there will be a column for you and your spouse. Click the traditional IRA boxes for each of you. Remember you're contributing to a traditional IRA, not a Roth IRA. Then hit continue.
Click no to go to the next page.
Presumably, you put in the maximum $6,000. If you're 50+, that could be $7,000 [in 2021]. Fill the box out accurately, then hit continue.
This question is asking about recharacterizations, discussed above. If you're doing your Backdoor Roth IRA correctly, you'll answer this one “no” to go to the next page.
This question is asked because Turbotax is trying to discover if your IRA contribution is deductible. There is an income limit on IRA contribution deductions if your income is above a certain amount. Just answer the question truthfully, yes or no to move on.
You'll get the same question for your spouse if any.
If you contributed too much to an IRA in the past, here's where you report that. Most will just click “no” here and move on.
Next, Turbotax will ask you the same three questions about basis and amount in the IRA at the end of the previous year that it asked at the end of the conversion section. Make sure you answer them the same way! Don't worry that they were asked twice. That's normal. Then, if married, Turbotax will take you back through all the same questions about your spouse from the “repayment of a retirement distribution” on down. Once you answer all of those, you end up here.
Two things I want you to notice on this page. First, you, as a high earner, get no IRA deduction despite contributing $6,000-$12,000 to IRAs for the year. So that is $0. Second, now that you've entered your conversion and contribution, the amount of tax due as calculated by Turbotax in the upper left (“Federal Refund $0”) hasn't changed. That shows you that you did the whole process correctly. There should be no additional tax due from contributing to an IRA indirectly via the Backdoor Roth IRA process. Hit continue and you'll go back to the Deductions and Credits menu.
Scroll down to the Retirement and Investments section and make sure that you have a $6,000 (or $12,000) on the Traditional and Roth IRA Contributions line.
If you're really neurotic, and you have the downloaded version of Turbotax, you can double-check you did it right by going to Forms Mode (button in the upper left of the screen). Once there, you can click on your Form(s) 8606 to make sure you did it right.
Now you can see Turbotax's version of Form 8606. It's okay that it looks slightly different from the official IRS form. The IRS doesn't care. Remember if you did a spousal Backdoor Roth IRA to check both 8606s. The most important lines to check are lines 15c and 18. If you did the Backdoor Roth IRA correctly, these should both be $0. If they're $1 or $5, that's okay. If it's $6,000, you entered it into Turbotax incorrectly and need to start over.
Note that Turbotax uses the “Taxable IRA Distribution Wkst (per IRS Pub. 590-B)” to fill out this form. This is a bit of a gray area as to whether to do that or to simply go down the 8606 form. If you go through the worksheet, there will be nothing on 8606 lines 6-12. Either way, no biggie, as long as lines 15c and 18 are correct. If you care, this is what that worksheet looks like:
Amazingly, it looks a whole lot like lines 5-12 of Form 8606! Turbotax also has a version of this you can look at in Forms Mode. Here's what it looks like for our example:
Incidentally, if you have screwed this up and you're not getting what you want and you just want to start over, all you need to do is delete all the applicable forms in Forms mode. The most important ones to delete are the “IRA Contrib Wks” and the “IRA Info Wks.” Just click on the form and you'll find there's a delete button at the bottom on a PC but you need to go under the Forms menu on a Mac and select “Remove [name of form].” Then you can go back to the top and follow my instructions.
Hope this was helpful.
If you have a question about the Backdoor Roth IRA and not Turbotax specifically, you should FIRST read this very in-depth Backdoor Roth IRA Tutorial before asking your question in the comments below. I promise you there is a 99% chance your question is answered there.
Any questions? Is this the process you follow on Turbotax? Why or why not? Comment below!