Ok – Turbotax 2017 has a problem with its entry ordering when handling backdoor Roth IRA’s. If you just follow the normal wizards, you’ll end up with the incorrect information for your IRA contributions either: pay too much tax or be informed you have to pay a penalty for having gone over the IRA contribution limits.

The solution comes in several parts to get the wizard to figure out the right data. Here’s 3 major pitfalls I hit:

1. If you do automated imports of statements from your financial institute, or you simply enter your IRA contributions/transfers to Roth IRA on page 1/’Wages & Income’ section of your federal taxes BEFORE you enter the ‘Traditional and Roth IRA Contributions’ section on the ‘Deductions & Credits’ page 2, then it often calculates your backdoor Roth IRA incorrectly.
2. Double-entry and confusion around the word ‘contributed’. You only ‘contributed’ to a traditional IRA. You didn’t contribute to your Roth IRA, you transferred money to it. This can lead to overpayment.
3. Confusion about conversions and recharacterizations. They seem interchangeable, but are very different tax terms that result in massively different calculations and even severe penalties if done wrong.

 

Solutions and information:

There are number of write-ups on this topic, but here’s the ones that helped:

• Forum entry that describes the entry ordering problem and how to get Turbotax to calculate things correctly
  • Bottom line, you have to first tell Turbotax you contributed to your traditional IRA (it will tell you it’s non deductible), then import the 1099-R and tell Turbotax you converted to a Roth.
• How to report backdoor Roth IRA’s in Turbotax
  • Master page for how-to’s in TaxAct, H&R Block and Turbotax
• Federal site on the 8606 form that might prove helpful with some of the definitions between conversions and recharacterizations.
• Turbotax’s response, that is sort of helpful

 

Checking your 8606 form

Once you’ve done the steps above, you should verify the generated 8606 form is correct. Have Turbotax generate a PDF with the worksheets and find the 8606 form. Here’s a site that has a great, and complete, description of backdoor Roth IRA handling shows you what your 1040 and generated 8606 forms should look like.