Nondeductible IRA contributions are contributions made to your traditional IRA that weren’t deducted on your federal tax return. Because these contributions are made with money that has already been taxed, you don’t have to pay taxes on that income when you withdraw it; however, you do have to pay taxes on the earnings. You might make nondeductible IRA contributions if you already have a retirement plan through your employer and contribute to a separate IRA.
Go to this section in Credit Karma Tax: Traditional & Roth IRA Contributions
For tax purposes, you must also keep up with the basis of your nondeductible contributions to avoid calculating taxes incorrectly as most IRA custodians may not have this information handy. You should keep records so that the taxable portion of your retirement income is calculated correctly when you begin receiving distributions.
If you entered pre-tax contribution amounts from your W-2, you don’t need to report them under Traditional & Roth IRA Contributions.
If you made nondeductible IRA contributions, you will need to report them on Form 8606 in your return. For specifics on when you must file Form 8606, please review the IRS Instructions for Form 8606. Credit Karma Tax will generate Form 8606 and include it in your return, if necessary, based on the information you provide in Traditional & Roth IRA Contributions.
Backdoor Roth Contributions
A “backdoor Roth” is a way for taxpayers to contribute to a Roth IRA even though their AGI would normally limit their contributions. This typically involves rolling over funds from a tax deferred account, such as a traditional IRA, into a Roth account. You should seek advice from a qualified financial adviser to see if this approach makes sense for your situation.
To enter your “backdoor Roth” contributions in Credit Karma Tax:
- Enter your 1099-R for the traditional IRA rollover into a Roth IRA, with the box 2a amount corrected.
- The issuer of your 1099-R is instructed to put the taxable amount in box 2a. However, if they do not know that you rolled over any of it, they won't know to exclude that amount from box 2a. In this case, you can either ask the issuer for a revised 1099-R (tell them that you rolled over $X amount), or you can do the calculation yourself. Credit Karma Tax requires you to do this calculation yourself.
- In the field Amount of distribution rolled over or converted to Qualified Roth IRA enter the amount you rolled over to a Roth IRA, then hit tab. This will bring up a new field for Backdoor Roth Entry.
- Enter your backdoor Roth amount.
- Hit next, and you'll be taken to the Form 8606 questions from there, and Form 8606 will generate as needed.