Roth IRA excess contribution

[Anonymous]

I am concerned I over-contributed to my Roth IRA due to income limits.  When will TurboTax tell me if I contributed too much or not?

I have finished my taxes and I am ready to file. I did not get any alerts from Turbo tax that I overcontributed.  Only thing it says about my roth IRA contributions is that it isn't tax deductible. I am taking standard deduction married filing jointly. 

Am I okay or am I missing something? 

[fanfare]

look at your tax or refund.

enter the Roth Contribution.

If your tax goes up (refund down) you contributed too much and you pay a penalty which TurboTax has added.

[Anonymous]

I zeroed it out and my refund did not change. So I assume I’m good then. 

[RaifH]

The Roth contribution limits are based on your modified AGI and you can contribute up to the maximum of $6,000, or $7,000 if you are 50 years or older if your income is under:

• $198,000 if married filing jointly
• $125,000 if single, head of household, or married filing separately and did not live with your spouse.

If you are married filing separately but did live with your spouse in 2021, your contribution limit is reduced and you cannot contribute at all if you earned above $10,000.

If you removed your contribution and your taxes did not change, and TurboTax never warned you that you over-contributed and need to remove the excess, you are okay as long as you do not have any additional income that you have not yet entered. 

[tphtph]

Wife and I are at $250,000 combined and I am 56 years old.

In 2021, I opened a backdoor Roth, by contributing $7,000 after-tax dollars into my traditional IRA, and then immediately opening a new Roth and funding it $7,000 from the traditional.

I did not realize there was a penalty, and so a penalty of about $420 has been added to my tax bill.   But I think I can move the $7,000 from Roth back into traditional, and thus avoid the penalty?

Vanguard is not letting me do this, and says it's not allowed to move Roth money into a traditional.  So I'm not sure the best way to handle this and avoid $420 fee.

Any ideas please, or am I getting something wrong?

[RaifH]

If you did it how you described, there should not be a penalty. You made a nondeductible contribution to a traditional IRA then converted it to a Roth IRA. Since you did not contribute directly to the Roth, you should not be subject to the penalty. To enter this in TurboTax:

To enter a contribution to an IRA, please use the following steps:

1. In the Deductions & Credits section of your Federal return, scroll down to Retirement and Investments. Click Show More and click Revisit/Start next to Traditional and Roth IRA Contributions.
2. If you converted to a Roth IRA, your original contribution was to a Traditional IRA. You then should have received a 1099-R for the conversion from a traditional IRA to a Roth IRA if you both made the contribution and the conversion in 2021. For a proper back-door Roth, you will want to select Traditional IRA.
3. Select No to Is This a Repayment of a Retirement Distribution?
4. Enter your contribution amount, making sure to put it in the appropriate box if you contributed in 2022.
5. Select No to Did you change your mind? For more details on the differences between conversions and re-characterizations, you can click on the TurboTax help article.
6. Navigate through the rest of the questions. This should be a Nondeductible contribution.

If you also converted the traditional IRA to a Roth in 2021, you should have gotten a 1099-R from the traditional IRA, which would be entered like this:

1. Search for 1099-R and select the Jump to link in the search results.
2. Continue through the screens to import or enter your 1099-R form.
3. The IRA/SEP/SIMPLE box is checked.
4. When asked What did you do with the money? select  I did a combination of rolling over, converting, or cashing out the money. Enter the money converted to a Roth and Continue.
5. After a few more screens, it will ask Any Nondeductible Contributions to Your IRA? If you had a basis in your traditional IRA account, you may enter it here as well as the starting and ending values of the IRA so TurboTax can determine the taxable amount of the conversion. 

For screenshots of the process, see this TurboTax article. 

@tphtph

[tphtph]

Thank you!    I asked a similar question in another post, and the article you referred me too solved it.    I really appreciate the help!

[Cdelangel5]

Does the 2021 IRA total amount contribution also include the amount my employer contributed or just my contribution?