I live outside the US and am married to a foreigner. Turbo tax says that I should file as "married filing separately", but this limits my contributions to roth IRA. help?

[knanky]

I had a salary of approx 50,000 and due to the "married filing separately" it says any contribution is excess :( What can I do to fix this?

[DanaB27]

You can recharacterize the Roth contribution as a nondeductible traditional IRA contribution and then convert it back to Roth (this is called backdoor Roth).

You have to request with your bank to recharacterize the Roth contribution as a traditional IRA contribution.  You will enter on your 2020 tax return the recharacterization when you enter the contribution to the Roth IRA:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions”
3. Click on “Jump to IRA contributions"
4. Select “Roth IRA”
5. Answer “No” to “Is This a Repayment of a Retirement Distribution
6. Enter the Roth contribution amount 
7. Answer “Yes” to the recharacterized question on the “Did You Change Your Mind?” screen and enter the contribution amount (no earnings or losses)
8. TurboTax will ask for an explanation statement where it should be stated that the original $xxx.xx plus $xxx.xx earnings (or loss) were recharacterized.
9. On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" (if you are thinking about doing a backdoor Roth. If you have a retirement plan at work and are over the income limit it will be nondeductible and you only get a screen saying $0 is deductible)

After the recharacterization you will request the conversion traditional to Roth IRA. Since this happens in 2021 it will be entered next year on your 2021 tax return:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “1099-R”
3. Click on “Jump to 1099-R”
4. Click "Continue" and enter the information from your 1099-R
5. Answer questions until you get to “Tell us if you moved the money through a rollover or conversion” and choose “I converted some or all of it to a Roth IRA”
6. On the "Your 1099-R Entries" screen click "continue"
7. Answer "yes" to "Any nondeductible Contributions to your IRA?" if you had any nondeductible contributions in prior years.
8. Answer the questions about the basis and value

Please be aware, you will get two 2021 1099-R in 2022:

• One 1099-R will be for the (backdoor) conversion from traditional IRA to Roth IRA and will be entered on your 2021 tax return as mentioned above.

• The second 1099-R will be for the recharacterization with code R-Recharacterized IRA contribution made for 2020 and this belongs on the 2020 return. But a 1099-R with code R will do nothing to your return. You can only report the recharacterization as mentioned above, therefore you can ignore the 1099-R with code R.

Please see What happens if I made a ROTH IRA contribution but my modified adjusted gross income exceeds the lim... for additional information.