Roth Contributions and Backdoor Rollover in Same Year

[jamesolson9618]

I converted about $140K from a traditional IRA to a Roth IRA in 2023. I also contributed the maximum amount of $7,500 to the Roth in small amounts over the course of the year.  The conversion amount puts my MAGI over the amount allowed in order to make Roth contributions, but I was told by my financial planner that the conversion is not included in the MAGI calculation for the purposes of making the separate contributions.  However, TT 2023 is including the conversion amount in my MAGI calculation, putting me over the income limit and resulting in a tax penalty of 6% of the Roth contributions. Is TT doing this correctly?  I cannot find any IRS rules that talk about how Roth conversions are treated for the purposes of calculating MAGI when making contributions in the same year.

[dmertz]

It's unlikely that you have received the Form 1099-R yet, so you are probably guessing what the Form 1099-R should look like, or if you have received the Form 1099-R you have entered it incorrectly.  The Form 1099-R for a $140k conversion from a traditional IRA to a Roth IRA will have $140k in boxes 1 and 2a, code 2 or 7 in box 7 depending on your age, and the IRA/SEP/SIMPLE box marked.  When you enter this Form 1099-R into TurboTax you must indicate that you moved the money to another retirement account, that you did a combination of rolling over, converting and cashing out, then enter $140k in the box for a Roth conversion.

(If you instead did an In-plan Roth Rollover (IRR) in an employer plan like a 401(k), not a conversion from a traditional IRA to a Roth IRA, the IRR is not permitted to be excluded from MAGI for the purpose of a Roth IRA contribution.)

[jamesolson9618]

Thank you. I just realized I basically asked this same question last year, and ended up resolving it the way you describe. Funny thing, memory!