How to calculate the tax due for a back door roth conversion when the traditional ira has a balance ?

[g8614g]

On form 8606 line 15c has an asterisk and the tax due is * From Taxable Distribution Wkst (per IRS Pub. 590B). Using the pro rata calculation formula the tax due is greater. What did I do wrong?

[qbteachmt]

Did you do the math or are you questioning how the worksheet did the math?

Example"

Trad IRA has $14,000 in it already, pre-tax (deducted) contributions + earnings. The client wants to Backdoor, so they contribute $7,000 post tax (will not deduct). They intend to convert $7,000. It's never the same money. It's just the same amount as the contribution. This won't be a Backdoor. Now it's a pro rata conversion. Their post-tax contribution is Basis.

All Trad IRA, SEP IRA and SIMPLE IRA balances are aggregated.

$14,000 + $7,000 = $21,000

$7,000 divided by $21,000 = 1/3 of every dollar contributed is considered to be from Basis and not taxable. 2/3 is taxable.

$2,331 not taxable.

$4,669 taxable as ordinary income.

And for the future, the original $7,000 basis is reduced by the $2,331, leaving $4,669 Basis for next conversion or distribution.

[g8614g]

Thank you for your reply.

I did the math and the results comply with your formula which resulted in higher taxes due and therefore, I am questioning how the worksheet did the math.

On form 8606 lines 13 and 15c have an asterisk which states that the tax due is from " IRA Distribution worksheet (per IRS Pub. 590-B".  Thus, the program entered a lower tax due.

[qbteachmt]

Did you read that pub and look at the worksheet referenced:

https://www.irs.gov/pub/irs-pdf/p590b.pdf

Maybe there's a related condition you forgot applies, or you skipped an entry somewhere, but the software is doing that part fine.