Possible ROTH IRA excess contribution - TT doesn't tell me much

[jakesmith63]

I made a Full ($7000) Roth contribution in the Fall of 2019, then had an expected bump in year-end income.  I realize that MAGI, not AGI, is the test for contribution limits, but Turbo Tax apparently doesn't easily tell me MAGI.  Anyway, my AGI puts me in the "reduced" contribution range. Although other discussions here suggest Turbo Tax will tell me what my Roth contribution can be, it does  not seem to be doing that. It simply accepts the full $7000 number, and then asks ME if I have an excess contribution.

What am I missing?  How do I get Turbo Tax to tell me what the contribution limit is for me?  And then if you want to try part 2 here . . .  once I get that answer, what do I do about the portion that is "excess"?  

[jakesmith63]

Sorry. I did some more clicking and got TT to provide the allowable contribution.  Thanks.

[dmertz]

When 2019 TurboTax asks if you if you have an excess contribution, it's asking if you had an excess contribution subject to penalty in 2018 that you carried into 2019.

TurboTax will accept your entry of any amount that you tell TurboTax that you contributed for 2019; enter whatever amount you actually contributed or anticipate contributing.  TurboTax determines your 2019 excess Roth IRA contribution from your filing status, MAGI and the amount that you contributed to Roth IRAs for 2019.  If any portion of your Roth IRA contributions made for 2019 is an excess contribution, TurboTax will inform you of that as you proceed through the entry steps.  If TurboTax tells you that some amount of an anticipated Roth IRA contribution (that you have not yet made) is an excess contribution, simply go back and reduce the amount that you entered as your Roth IRA contribution.  [Edit:  I see that you have now done that.]

Since you appear to be using the CD/download version of TurboTax, you can also switch to forms mode and view the Roth IRA Contribution Limit Worksheet or view Form 5329 Part IV.

[jakesmith63]

Thank you for this reply.  I appreciate your time.

May I ask one more non-Turbo Tax question? Having now determined that $5850 of the $7000 was excess, is the easiest thing to do to tell the mutual fund company to move that into my traditional IRA? Or is there some limitation there as well? (I realize it won't be deductible, just trying to make sure it's allowable.) I guess what I'm asking is a tax question: May I still contribute the extra, already-contributed $5850 to the traditional IRA?

[dmertz]

Yes, you can ask the IRA custodian to explicitly recharacterize the excess as a traditional IRA contribution and they will transfer the excess, adjusted for any investment gain or loss while in the Roth IRA, to a traditional IRA.  This causes the amount recharacterized to be treated as if it was originally made to the traditional IRA and had incurred the investment gain or loss in the traditional IRA.  TurboTax will automatically treat as a traditional IRA contribution whatever amount you indicate (the amount of the excess) that you switched to being a traditional IRA contribution.

The resulting traditional IRA contribution will be deductible or nondeductible depending on your filing status, modified AGI for the purpose of a deduction for a traditional IRA contribution, and whether or not you were covered by a workplace retirement plan for 2019 (indicated by the mark in box 13 Retirement plan on your W-2).  TurboTax will automatically prepare Form 8606 to report a nondeductible traditional IRA contribution or include a deductible contribution on Schedule 1 line 19.

Your other option to avoid an excess-contribution penalty is to obtain a return of excess contribution from the Roth IRA, with the distribution including any investment gain or loss attributable to the excess contribution.  Any investment gain will be subject to income tax and, if you are under age 59½, to a 10% early-distribution penalty.

[VictoriaD75]

No.If a taxpayer contributes to both a traditional IRA and a Roth IRA, the combined contributions cannot exceed the normal annual limit ($6,000 or $7,000 if age 50 or older in 2019).