[Backdoor Roth] How to tell FreeTaxUSA that I want Traditional IRA contribution to be nondeductible?
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.
Best Answer
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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.
Answers
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Is there a better approach like entering Form 8606 manually? TT is not the answer - they have the same problem!
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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.
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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?
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From IRS Publication 590b ( )
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.
