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[Backdoor Roth] How to tell FreeTaxUSA that I want Traditional IRA contribution to be nondeductible?

leoo

I did a backdoor Roth in 2023, but didn't make enough income to totally phase out of the deductible amounts.

So when I put my Trad IRA contribution —> Roth IRA conversion information, FreeTaxUSA is "forcing" me to take the partial Trad IRA deduction, and wants to tax me on my Roth IRA conversion.

I double checked that the checkbox stating that I have an employer-sponsored retirement plan checked.

TL;DR I want my Traditional IRA contribution to be treated as fully nondeductible, but don't know how to tell FreeTaxUSA this. The software automatically chooses it to be deductible.

Others have encountered this issue and so far the only solution is to go to TurboTax…which I would like to avoid because they are evil lol

Here's is the answer that I found on FreeTaxUSA support center, that doesn't really help

"How do I have my IRA contribution be treated as nondeductible and shown on Form 8606?"
- We'll automatically calculate whether an IRA contribution is deductible or nondeductible. On the W-2 screen, there is a checkbox that asks if you are covered by a retirement plan at work. If you check that box and your income is above the threshold for being able to deduct an IRA contribution, then the IRA contribution will be treated as nondeductible and be shown on Form 8606.

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Accepted answers

MatthewD

Hi Leao,

I am really sorry, but our software does not currently support the election to have your IRA contribution be nondeductible. As you pointed out in your comment above, we automatically make the calculations. So you know, you can still do the Roth conversion and the bottom line will still be the same, since some will be deducted from income and the conversion is added as taxable.

We plan on updating our software for 2024 to allow for the nondeductible election.

All comments

MatthewD

Hi Leao,

We plan on updating our software for 2024 to allow for the nondeductible election.

DanDanroo1ne

Is there a better approach like entering Form 8606 manually? TT is not the answer - they have the same problem! https://ttlc.intuit.com/community/retirement/discussion/converted-backdoor-conversion-from-ira-to-roth-tt-blew-up/00/3293894

MatthewD

https://community.freetaxusa.com/discussion/comment/1746#Comment_1746

Hi Dan,

I would not suggest adding an 8606, but you could do that if you wanted. Just keep in mind that even though part of the contribution is deductible, your bottom line and the Roth Conversion would be exactly the same if the transactions are all done in the same tax year.

leoo

Cool, good to know that tax owed is the same for this tax year.

However, would there be any weirdness when it comes time later down the road when I actually withdraw money out from the Roth IRA? Or weirdness with calculating the Roth/Trad IRA basis?

RyanZ

https://community.freetaxusa.com/discussion/comment/1754#Comment_1754

From IRS Publication 590b ( https://www.irs.gov/publications/p590b#en_US_2023_publink100089454 )
Basis of distributed property.
The basis of property distributed from a Roth IRA is its fair market value on the date of distribution, whether or not the distribution is a qualified distribution.

The Traditional IRA basis (of nondeductible traditional IRA contributions) will be reported on the form 8606.

confused

https://community.freetaxusa.com/discussion/comment/1745#Comment_1745

I just run into the same issue and it seems the latest software for tax year 2024 still does not allow for nondeductible election. For single individuals with retirement plan at work, this becomes an issue if the MAGI is between $77000 to $87000 for 2024. If lower than $77000 or higher than $87000, the software allows full $7000 non-deductible election, but when between $77000 and $87000, it forces you to take partial deductible election, which is frustrating. I understand in the end it cancels out and the bottom line is the same. But it makes form 8646 unnecessarily confusion. I have used TaxAct for many years and this is the first year I use FreeTaxUSA. I really like FreeTaxUSA except this one issue.

confusedtoo

https://community.freetaxusa.com/discussion/comment/4840#Comment_4840

im also looking for the answer….

confusedtoo

https://community.freetaxusa.com/discussion/comment/1745#Comment_1745

hi Matt, does the software work now for backdoor Roth IRA of tax year 2024 please?

MatthewD

https://community.freetaxusa.com/discussion/comment/4843#Comment_4843

Yes, FreeTaxUSA fully supports backdoor Roths (nondeductible IRA Contribution to Roth conversions).

MatthewD

https://community.freetaxusa.com/discussion/comment/4840#Comment_4840

Hi Confused,

We do have this option. When your IRA deduction is fully or partially deductible, one of the pages after the IRA Contributions page (on the Deductions/Credit menu) will have a question/checkbox, which will allow you to elect it to be nondeductible. A huge improvement! Thank you to all those who wrote in and asked for this in prior years. The Developers listened!

confused

https://community.freetaxusa.com/discussion/comment/4885#Comment_4885

The problem is how much you could enter for non-deductible contribution. If the software calculates that your deductible contribution is $6000, the system does not allow you to enter $7000 for non-deductible contribution. It forces you to enter max $6000 for non-deducible contribution even though you want to make $7000 non-deductible contribution. If your income is low enough to qualify $7000 deductible contribution or high enough to not qualified for deductible contribution at all, then you could enter $7000 non-deductible contribution. This is a bug and should be fixed.

MatthewD

https://community.freetaxusa.com/discussion/comment/4887#Comment_4887

HI Confused,

Thank you for the clarification. Keep in mind that your contribution may be limited to your earned income from wages or self-employment income. In situations like this, please contact Customer Support through your account and report the problem. They will work with you, have the ability to review your account and let you know the resolution.