What exactly is the value of a Roth IRA?

[walengan91]

Is it my total annual contribution? Or lifetime contribution? I need clarification

[fanfare · Accepted solution]

The value is what it is currently worth to cash out completely, not counting any liquidation fees or penalties.

OR

for tax purposes what it is worth on a particular date such as the last day of the calendar year.

[km13818]

Why does entering this value affect my tax return? I thought Roth IRAs should have no impact on my taxes

[JulieS]

Yes, it is true that Roth distributions are generally tax free, they do sometimes affect your taxes.

If you take money out before you are 59-1/2 years old, you have to show that the distribution is a qualified Roth distribution, and therefore tax free with no penalty. 

Contributions to Roth accounts are limited, so year end values are a way of the IRS monitoring excess contributions.

[taxpreparer1000]

I'm still baffled as to why TurboTax is asking for the first time ever the value of my husband's Roth IRA.  He made no excess contributions - in fact he made less than the maximum contribution amount.  He took nothing out of the Roth IRA.  He's not old enough for mandatory distributions.

In fact, for the first time ever, TurboTax shows us owing MORE tax based on Roth IRA contributions.  So we're being taxed doubly??

Does anyone understand this? 

Thanks!!!

[taxpreparer1000]

Never mind.  I figured out the problem!

[fanfare]

"Contributions to Roth accounts are limited, so year end values are a way of the IRS monitoring excess contributions."

@JulieS  "Expert"

Contributions reported on Form 5498 might be a way to monitor excess contributions.

I've got news for you. Some people have Roths that in a year grow more than the allowed yearly contributions.

[wbucossi]

I'm running into this same issue.  How did you fix it?

[ReneeM7122]

It depends.  Without more information about your situation, it sounds like TurboTax might be asking you for information to complete Form 8606 (Nondeductible IRAs).

We'll automatically generate and fill out Form 8606 if you reported any of these on your tax return:

• Nondeductible contributions made to a traditional IRA
• Distributions from a traditional, SEP or SIMPLE IRA that had nondeductible contributions (excluding rollovers, conversions, recharacterizations, qualified charitable distributions, one-time distribution to fund an HSA, or return of certain contributions)
• Conversions from a traditional, SEP, or SIMPLE IRA to a Roth IRA
• Distributions from a Roth IRA (other than rollovers, recharacterizations, or a return of certain contributions)

To trigger the 8606 in TurboTax

1. Open your return if it isn't already open.
2. Inside TurboTax, search for this exact phrase: 8606 nondeductible ira contributions
3. Select the Jump to link in the search results.
4. Proceed through the IRA section, answering questions as you go.
5. When you reach the screen Any nondeductible contributions to [taxpayer's] IRA? answer Yes, then continue. We'll generate and fill out the 8606 behind the scenes.

If this doesn't answer your question, please come back with more details about your Roth IRA and the documents that you have received to use in  preparing your return.

@wbucossi

[pcar4ever]

I am seeing the question "Enter the value of Roth IRAs on Dec 31, 2021". 

1.  I have made 10 years of "Backdoor Roth contributions" in one Roth account and 6 years of "Backdoor Roth contributions in my second Roth IRA. Is this question asking for the total balance of both of my Roth Ira accounts on 12/31/21?

2. What is the purpose of asking the total balance of these Roth accounts, since the values of each account varies depending of market ups and downs?

[JohnB5677]

We are looking for the 12/31/2021 value of the combined total of your ROTH accounts.

TurboTax asks for your 2021 year-end value in Roth IRAs to ensure that your entries do not indicate that you have an excess contribution in your Roth IRAs.  The year-end excess contribution penalty is calculated on the lesser of the amount of the excess or the year end balance.

[Robdaug10]

I still do not fully understand what it is asking for in regards to the Roth IRA value when filing my 2023 tax return, especially if it is supposed to help determine/flag excess contributions.  Specifically, is the Roth IRA value in question the value of my contributions in 2023, or the value of my roth IRA basis, or the “market value” of my roth IRA which includes unrealized gains/earnings?

[AbrahamT]

Just to clarify, where specifically in TT is it asking to record the value of Roth IRA values in helping determine the amount of your excess Roth contribution? 

[Robdaug10]

I was entering how much I contributed to the Roth IRA, and that was followed by asking the “value” of the roth IRA.  My comment regarding “excess” was derived from the related thread above trying to read responses for this same/similar question…not specifically worded that way when TT requested the “value”.  Note:  for my particular issue, I had earned unexpected income in 2023 which gave me a further problem to resolve since I became ineligible to contribute, and TT identified that issue with the recommendation to recharacterize those contributions to a traditional (which Ive started).  If I remember correctly, this realization occurred after being requested for the value of the IRA.

[AbrahamT]

In that case, you over contributed to the Roth IRA which will result in a 6% penalty if you keep it there. Yo have two options, you can either keep the penalty and apply the excess contribution till next year 

OR; remove the excess contribution after the tax deadline by requesting a regular distribution to remove the excess contribution between October 17 and December 31, 2023

If you would rather avoid the penalty, then you can either withdraw the excess contributions plus earnings.

OR; Recharacterize the Roth IRA contribution as a traditional IRA contribution.

For complete detail on how to handle this. See HERE