You need to enter the taxpayer's and spouse's contributions under separate columns.

Read this article for detailed instructions:

https://proconnect.intuit.com/support/en-us/help-article/retirement-tax-credits-deductions/entering-...

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@tccpg289 wrote:

Taxpayer is married filing jointly, and the spouse contributed $6k to a non-deductible IRA and immediately converted to a roth.

Their combined income is $700k for 2022.

Right now, the $6k is coming through as taxable on the 1040 (based on the information entered from the 1099-R).

How does this get entered correctly?

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If the spouse contributed $6K and that was distributed for ROTH conversion along with earnings/loss, 1099-R wouldn't have reported that $6K is taxable because that's the basis.  Take a second look at the 1099-R and make the relevant entries in accordance with the article cited above.

"and the spouse contributed $6k to a non-deductible IRA and immediately converted to a roth."

Was there only nondeducted post-tax amounts ever into that type of account (Trad, SEP, SIMPLE IRA)? Was there no other nonbasis pre-tax contribution, no earnings, in any of those account types for this spouse?

Ultimately it should not be taxable, I am just trying to figure out how to enter it in the software so that it doesn't come through as taxable.

"Ultimately it should not be taxable"

That's because the entire amount converted also is basis. That's why it works, so that's what the data entries need to reflect. If none of what I asked is true, then there will be pro-rata tax computed.

The 1099-R issuer may not provided everything that has to be entered. For instance, they don't know if there are other accounts of that type with deducted contributions or never-taxed earnings. Only the taxpayer and you will be able to enter what applies in that worksheet.

@tccpg289 You already have the input instructions and tax technical from the posts above.

@tccpg289 It is not true that such conversions should ultimately be nontaxable.

In order for the conversion to be totally nontaxable, all of the spouse's IRA accounts, if there's more than one, must consist only of nondeductible contributions and no earnings.  Otherwise, prorata rule will apply.

If all of the following are true, that's when you have a clear case that the conversion is nontaxable:

• spouse had only one IRA account;
• that account had no previous contributions;
• only nondeductible contribution was made; and
• conversion was made before any earnings was accrued.

We don't know whether that's the case for your client.  Hopefully, you do.

If this is not enough, contact Support EITHER https://proconnect.intuit.com/community/proconnect-tax-news-updates/discussion/proconnect-tax-assist... OR https://proconnect.intuit.com/support/en-us/help-article/intuit-account-settings/contact-proconnect-...

So if she had previously contributed to that IRA and had deducted those contributions on her return, she would not be able to do the conversion?

The non-deductible amount immediately contributed was indeed converted.

She could still do the conversion, but a portion of it would be taxable income. 

@tccpg289 

"The non-deductible amount immediately contributed was indeed converted."

There is no selective conversion from Trad IRA. The way to properly state this is, the amount that is the same as the undeducted contribution is converted. And now you have a pro rata taxable conversion. It's no longer "backdoor."

All balances in Trad IRA, SIMPLE IRA and SEP IRA are used in the math.

The undeducted contribution is Basis. The math on the form will compute the % of Basis in the total FMV. That % is used to compute how much of the conversion is nontaxable because it is considered to be from Basis. It also is used to update the records of how much Basis remains in the account, if the account(s) were not fully converted.

The idea I try to push is:

You really only have ONE IRA, but it may be in a bunch of different accounts.

You really only have ONE Roth, but it may be in a bunch of different accounts.

You really only have ONE Savings accounts, but it may be in a bunch of different banks.

So if it is flowing correctly on the 8606:

-nondeductible contribution on Line 1

-Same amount listed as nontaxable on line 13 and Part II line 16?

As you stated, if she had previously contributed to that IRA and had deducted those contributions on her return, then any conversion is now taxable to a %.

Example:

She put in $5,000 one year, $6,000 another year, both were deducted. And they have earnings, so let's pretend the account had a FMV of $12,000.

Now she means to backdoor for Roth IRA. She puts $6,000 as nondeductible into Trad IRA, then converts $6,000 to Roth IRA. That isn't the same $6,000. You can't pick and choose.

So, we do the math:

$6,000 Basis (her nondeducted contribution) divided by $18,000 total = 1/3 or 33% of the conversion is Basis and not taxable. That is $2,000. The other $4,000 (2/3 of the conversion) is pre-taxed money considered to be from earlier contributions and earnings and is now taxable.

And her Basis is updated: $6,000 in Basis minus $2,000 just taxed means the next conversion will use a new starting point of $4,000 remaining basis. Plus any contributions if she tries to do backdoor again.

In other words, she lost the Backdoor "nontaxable" benefit, but she still gets to put new money into Roth IRA even with high income, by using the "nondeductible and convert" tactics.