Backdoor ROTH Tax Question

[jbjr]

So I was doing my taxes yesterday and came across something unexpected. I currently fund a backdoor Roth IRA once a year via the following method. I transfer $5500 (non tax deducted) in a lump sum to a traditional Vanguard IRA and then as soon as the funds clear i transfer them to a Vanguard Roth IRA. I don't use the traditional account for anything else. It was set up for this purpose only so there has never been any interest accumulation in the traditional account. I've only done this for the last 2 years.

When I was doing my taxes (via Turbotax) it asked me about IRA contributions so I entered the info properly based on how i fund the accounts. The software informed me i needed to pay a penalty of around $250 for the conversion.

Is this something new? Is there actually a penalty for this? Or is this the tax software getting confused because it thinks i am transferring tax deducted monies from the traditional account to the Roth?

[dandarc]

2 possibilities come to mind:

1.  Do you have any other tIRA money anywhere?  Maybe a rollover happened in 2015?  If so, your conversion would be partially subject to tax and penalty.

2.  You made a data entry error somewhere - possibly in such a way that TuboTax thinks you have other tIRA money.  Maybe you put in $2500 somewhere you meant $5500?  A 2 for a 5 is a common keying error on a 10-key.