I use FEIE which brings my AGI to 0$. The maximum yearly Roth IRA contributions are determined from MAGI, and not AGI, TurboTax still say it's an excess based on AGI why?

[gdalton5]

I have not contributed to my ROTH IRA in 3 years because every year TurboTax says I have an excess contribution I must address. Even their own fourms say the contributions are determined from MAGI. How can I get turbotax to not categorize my ROTH IRA contributions based on AGI?

[DanaB27]

Yes, because you need taxable compensation to make IRA contributions. The Foreign Earned Income Exclusion excludes your income and therefore isn't taxable compensation.

For 2021 the total contributions you make each year to all of your traditional IRAs  and Roth IRAs can't be more than:

• $6,000 ($7,000 if you're age 50 or older), or
• If less, your taxable compensation for the year.

To avoid the 6% tax on excess contributions, you must withdraw:

• the excess contributions from your IRA by the due date of your individual income tax return (including extensions); and
• any income earned on the excess contribution.

If you request the withdrawal of excess contribution plus earnings then enter the contribution amount as withdrawn on the penalty screen during the IRA contribution interview. Then TurboTax won't calculate the 6% penalty on Form 5329 IV.

You will get a 2022 Form 1099-R  in 2023 with codes P and J for the withdrawal of excess contribution and earnings. This 1099-R will have to be included on your 2021 tax return and you have two options:  

• You can wait until you receive the 2022 Form 1099-R in 2023 and amend your 2021 return or
• You can report it now in your 2021 return and ignore the 1099-R when it comes unless there is Box 4 Federal Tax withholding and/or Box 14 State withholding. Then you must enter the 2022 Form 1099-R into the 2022 tax return since the withholdings are reported in the year that the tax was withheld. The 2022 code P will not do anything to the 2022 tax return but the withholdings will be applied to 2022.

To create a Form 1099-R in your 2021 return please follow the steps below:

1. Login to your TurboTax Account 
2. Click on the "Search" on the top right and type “1099-R” 
3. Click on “Jump to 1099-R”
4. Answer "Yes" to "Did you get a 1099-R in 2021?"
5. Select "I'll type it in myself"
6. Box 1 enter total distribution (contribution plus earning)
7. Box 2a enter the earnings
8. Box 7 enter J and P
9. Click "Continue"
10. On the "Which year on Form 1099-R" screen say that this is a 2022 Form 1099-R.
11. Click "Continue" after all 1099-R are entered and answer all the questions.
12. Continue until "Did you use your IRA to pay for any of these expenses?" screen and enter the amount of earnings under "Another reason" if you are over 59 1/2 (if you are under 59 1/2 click "Continue")

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2020" you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2021.

[gdalton5]

Thank you for the response, however you did not address the main point of my comment of AGI vs MAGI. 

From TurboTax: 

To find your MAGI, take your AGI and add back:

• Any deductions you took for IRA contributions and taxable Social Security payments
• Deductions you took for student loan interest
• Tuition and fees deduction
• Half of self-employment tax
• Excluded foreign income
• Interest from EE savings bonds used to pay for higher education expenses
• Losses from a partnership
• Rental losses
• The exclusion for adoption expenses

Then:

Roth IRAs

To contribute to a Roth IRA, your MAGI must be below the limits specified by the IRS. If you’re within the income threshold, the actual amount you can contribute  is also determined by your MAGI. If your MAGI exceeds the allowed limits, then your contributions are phased out.

I understand what you're saying but as stated above you are also assuming AGI without considering the addition of the excluded income to calculate the MAGI value.