TurboTax Backdoor Roth IRA

If you’ve ever wondered how to handle a Backdoor Roth IRA in TurboTax, you’re not alone-especially if you’re a high-income earner who’s hit the direct Roth IRA contribution limits. The “TurboTax Backdoor Roth IRA” process involves making a non-deductible contribution to a traditional IRA, then converting those funds to a Roth IRA, and finally reporting both steps correctly in TurboTax to avoid unnecessary taxes and penalties. Using TurboTax for a Backdoor Roth IRA means you’ll need to enter your Form 1099-R, complete Form 8606 for non-deductible contributions, and make sure your taxable income reflects only any gains made between contribution and conversion. Navigating the TurboTax Backdoor Roth IRA workflow can seem intimidating, but with the right steps, you can ensure your IRA conversion is tax-smart, IRS-compliant, and ready to help your retirement savings grow tax-free.

What Is a Backdoor Roth IRA and Why Use TurboTax?

A Backdoor Roth IRA is a legal strategy that lets you bypass income limits on Roth IRA contributions by first funding a traditional IRA (often non-deductible), then converting it to a Roth IRA. This is especially useful for individuals whose income exceeds the direct Roth IRA contribution threshold. TurboTax is a popular software for reporting this process, but it requires careful input to avoid costly mistakes.

Step-by-Step: How to Report a Backdoor Roth IRA in TurboTax

1. Enter Your Non-Deductible Traditional IRA Contribution

• Go to the Deductions & Credits section in TurboTax.
• Select Retirement and Investments, then Traditional and Roth IRA Contributions.
• Enter your contribution to the traditional IRA and specify it as non-deductible when prompted.

2. Report the Roth IRA Conversion

• Navigate to the Wages & Income section.
• Find Retirement Plans and Social Security and select IRA, 401(k), Pension Plan (1099-R).
• Enter the details from your Form 1099-R, which reports the conversion from traditional to Roth IRA.
• When asked, indicate that the funds were converted to a Roth IRA.

3. Confirm Form 8606 Is Generated

• TurboTax should automatically generate Form 8606, which tracks your non-deductible contributions and ensures only any earnings are taxed.
• Double-check that your taxable amount on Form 1040, Line 4b is zero (unless you had earnings between contribution and conversion).

4. Troubleshooting Common Issues

• If TurboTax shows your conversion as taxable, make sure you entered your non-deductible contribution correctly and that your basis in the traditional IRA is accurate.
• For contributions made in one year and converted the next, ensure you report the basis correctly for each tax year and Form 8606 is included in both returns as needed.

FAQs

Q: Do I need Form 8606 for a Backdoor Roth IRA in TurboTax?
A: Yes, Form 8606 is required to report your non-deductible IRA contribution and ensure your conversion is not taxed twice.

Q: Why is TurboTax showing my backdoor Roth IRA as taxable?
A: This often happens if you didn’t enter your non-deductible traditional IRA contribution correctly or missed the basis questions. Double-check your entries in both the Deductions & Credits and Income sections.