I might have found a bug in TurboTax around Roth Conversions and MAGI calculations

[JustAnotherPersonWithTaxQuestion]

Does anyone have any suggestions on what to do?  In 2025, my spouse and I contributed the maximum allowable to our Roth IRAs.  We also made a large conversion from traditional 401k to Roth 401k.  This Roth conversion, according to TurboTax, pushed our MAGI past the limits and made our Roth contributions "excess."  See: https://ttlc.intuit.com/turbotax-support/en-us/help-article/form-1099-r/happens-made-excess-roth-ira...

However, according to IRS guidelines, specifically IRS Publication 590-A, taxable income from a Roth IRA conversion is excluded from the Modified Adjusted Gross Income (MAGI) calculation used to determine eligibility for making annual Roth IRA contributions.

So is there a bug in TurboTax around MAGI when there are Roth Conversions?  How do I deal with this?  Am I misunderstanding the tax law?  I don't want to pay unnecessary penalties, neither to the IRS nor by undoing retirement contributions, if my understanding is correct.

[dmertz · Accepted solution]

TurboTax is behaving correctly.  You have misinterpreted Pub 590-A.  In-plan Roth Rollovers are not to be subtracted from AGI when calculating the MAGI for the the purpose of a Roth IRA contribution.  Only Roth conversions to a Roth IRA are to be subtracted.  A Roth 401(k) is not a Roth IRA.

By the due date of your 2025 tax return, including extensions, You'll need to correct your excess Roth IRA contributions either by obtaining returns of the excess contributions or recharacterizing them to traditional IRA contributions.

[JustAnotherPersonWithTaxQuestion]

@dmertz,

Thank you for clarifying.  Can you point me to the correct section so that I can read the rules?  Every time I google search, it claims the opposite.

Thanks!

[dmertz]

Line 2 of Worksheet 2-1 in IRS Pub 590-A says [emphasis added]:

2.  Enter any income resulting from the conversion of an IRA (other than a Roth IRA) to a Roth IRA (included on Form 1040, 1040-SR, or 1040-NR, line 4b) and a rollover from a qualified retirement plan to a Roth IRA (included on Form 1040, 1040-SR, or 1040-NR, line 5b)

As I said, a designated Roth account in an employer plan is not a Roth IRA, so this subtraction does not remove the taxable amount of In-plan Roth Rollovers.

Also refer to 26 USC § 408A(c)(3)(B)(i) which says:

adjusted gross income shall be determined in the same manner as under section 219(g)(3), except that any amount included in gross income under subsection (d)(3) shall not be taken into account,

26 USC § 408A covers only Roth IRAs, not designated Roth accounts in employer plans, so subsection (d)(3) refers to rollovers into a Roth IRA.  Designated Roth accounts in employer plans are covered in 26 USC § 402A with in-plan Roth Rollovers being covered in subsection (c)(4).

In this forum there are quite a few posts covering this topic because it's a somewhat common mistake for people to make.