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Level 2
February 1, 2020
Solved

Backdoor Roth IRA: Roth IRA Contribution Too High

  • February 1, 2020
  • 1 reply
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2019 was my first year contributing to an IRA. Through Fidelity I am contributing to a backdoor Roth IRA. Mid 2019 I created a Traditional IRA and created a Roth IRA. I contributed exactly $6,000 into my Traditional IRA and then converted all $6,000 into a Roth IRA.
** For some reason one of my dividends, before I turned on DRIP, put $2.36 into my Traditional IRA**

 

I believe I am reporting everything correctly but I am receiving the two warning errors.
"Income Too High To Deduct IRA Contribution"
"Your Roth Contribution Was Too High"

So this is what I did....
Federal Taxes
   > Wages & Income
      > Retirement Plans & Social Security - IRA, 401(k), Pension Plan Withdrawals
          Fidelity auto populated this for me.
          1- Gross Distribution: $6,000
          2a - Taxable Amount: $6,000
          2b - Check Boxes [x] Taxable amount not determined [x] Total Distribution

          7 - Select Codes: 2 - Early Distribution
          [x] IRA/SEP/SIMPLE box is checked on my copy of the 1099-R

 

  - What did you do with the money? [x] I converted all of this money to a Roth IRA Account.

  - Any Nondeductible Contributions to Your IRA?  [x] Yes, I made and tracked nondeductible.
  - Value of Traditional IRA on Dec 31, 2019?   $2.36   (because that dividend got put there)
  - Tell us the value of your Roth IRA as of December 31, 2019: $6,000 (since I converted it all)

Deductions & Credits
   > Retirements & Investments - Traditional & Roth IRA Contributions
       > Select the kind of IRA(s) you own or will contribute to for 2019.

            [x] Traditional

            [x] Roth

       > Tell us how much you contributed to Traditional IRA: $6,000

       > Switched, re characterized over to a Roth IRA? NO
       > Any nondeductible contributions prior to 2018? NO
       > Tell us the value of all your Traditional IRA Accounts: $2.36 (cause of the dividend)
   > Roth IRA Contributions
       > Did you make a Roth IRA contribution for 2019? YES
       > Enter Roth IRA contributions, even if transferred or re characterized: $6,000

       > Tell us the value of your Roth IRA as of December 31, 2019: $6,000

       - I receive the MAGI too high notice.
       - I receive the Roth Contribution was too high. I contributed $6k to Roth and $6k to Traditional.

       - You currently have a penalty.

For some reason my Federal Refund dropped ~$400 after all this.

Additional Notes for extreme detail:
For Fidelity I actual have 3 Accounts:

     Account 1: Traditional IRA   (Received a 1099-R and a 5498)

     Account 2: Roth IRA   (Received a 5498)
     Account 3: Fidelity GO (professionally managed Roth IRA, NO documents)

When I first created the Trad/Roth IRA accounts, it wanted me to self manage my Roth account. I asked Fidelity and they said if I wanted them to manage my Roth, I would have to create a 3rd account (the Fidelity GO account). So I technically transfer money into my Traditional IRA, convert to my Roth IRA, then transfer it to my Fidelity GO Roth account.

 

Account 1: Traditional IRA 5498: IRA Contribution: $6,000
                                                           Fair Market Value of Account: $2.36

Account 2: Roth IRA 5498 (the first Roth Account I use BEFORE I trade it to the Fidelity GO):

                                                          Roth IRA conversion amount: $6,000
                                                          Fair Market Value of account: $0.00

 

NO tax papers for Fidelity GO Roth because "Your Fidelity Go account will not receive a tax form because the funds were merely shifted from one Roth to another in our system. this transfer is not a tax event that would generate a tax form."

    Best answer by dmertz

      > Roth IRA Contributions
           > Did you make a Roth IRA contribution for 2019? YES
           > Enter Roth IRA contributions, even if transferred or re characterized: $6,000

     

    This was your mistake.   You made no regular Roth IRA contributions.

    1 reply

    dmertzAnswer
    Level 15
    February 1, 2020

      > Roth IRA Contributions
           > Did you make a Roth IRA contribution for 2019? YES
           > Enter Roth IRA contributions, even if transferred or re characterized: $6,000

     

    This was your mistake.   You made no regular Roth IRA contributions.

    Level 2
    March 24, 2021

     Hi!  My earned income from w-2 form is one number in wages and income, and a different number in deductions and credits.  Why?     Bill B.

    ReneeM7122
    Level 9
    March 24, 2021

    Thanks!  My wife and I have an earned income of $9355.  When I get to the deductions and credits, I am told that our earned income is $6857, and that we have over paid into our Roth IRA's.  I can not find the deductions that would bring $9355 down to $6857. 


    Please clarify:  on your W-2, Box 12, did you enter anything?  This would be under Deductions & Credits as regular personal IRA contributions items shown in box 12 of your W-2?  This would be the area that would affect the Roth deductions.

    @krazycrow1789