Why does TurboTax wrongly say I (70 years old) have a penalty after converting $70k to a Roth IRA?

[dmertz]

Make sure that you only entered this conversion by entering the Form 1099-R and indicating the conversion.  Make sure that you have not also reported the $70k as a regular Roth IRA contribution under Deductions & Credits.

[nsull307]

Although I entered the information correctly as a "Conversion" in two locations, the TT program automatically defaulted it as a "contribution" (not as a conversion) in the Credit / Deduction section.  After I removed it from the Credit/Deduction section, the penalty was removed.

[VictorW9]

Yes, but when converting an IRA to a Roth you will be liable to two sets of taxes. 1) the earnings of the IRA becomes taxable at conversion and also the deductible part part of the contributions becomes taxable too.

To avoid this you may have to rollover only the non-deductible contribution portion of you IRA for which you may have to calculate that portion against all your IRA accounts. The damage is probably already done but you could salvage this as some off these mistakes can be corrected before the April 15 tax deadline. You may want to seek professional help particularly if you were not expecting any hefty tax bill.

[dmertz]

VictorW9, the question was not about income taxes, the question was about an inappropriate penalty, an excess-contribution penalty now resolved by removing the erroneously entered regular contribution.

[VictorW9]

Yes I stand corrected. I did misinterpret the question. I thought the question was actually dealing with a tax situation rather than a penalty.

[Edited 2/13/2020 | 11:43pm]