Why is the Modified Adjusted Gross Income calculated by TurboTax different from the amount used in the maximum Roth IRA contribution worksheet?

[DanaB27]

Thank you, I reviewed your token. It seems you selected in the follow-up questions that the funds were moved to a designated Roth account instead of a Roth IRA.  

As dmertz stated, "The MAGI for the purpose of a Roth IRA contribution is reduced by the amount of a taxable rollover from the traditional account in a 401(k) to a Roth IRA, but is not reduced by the amount of an In-plan Roth Rollover."

Please review these follow-up questions if the funds were converted to a Roth IRA instead of a designated Roth 401(k):

1. Click "Federal Taxes" on the top and select "Wages & Income"
2. Click "I'll choose what to work on"
3. Scroll down and click "Update" next to "IRA, 401(k), Pension Plan (1099-R)" 
4. On the "Your 1099-R Entries" screen click "Edit"
5. On the "Did you move this money from a 401(k) to a Roth 401(k)?" screen answer "No"
6. On the "Did you move the money to a Roth IRA?" screen answer "Yes"

"Line 2: Enter any income resulting from the conversion of an IRA (other than a Roth IRA) to a Roth IRA (included on Form 1040, 1040-SR, or 1040-NR, line 4b) and a rollover from a qualified retirement plan to a Roth IRA (included on Form 1040, 1040-SR, or 1040-NR, line 5b)" (Worksheet 2-1)

@Suka1 

[Suka1]

Thanks! I did in-plan roth Rollover. I moved from individual 401k to 401k roth. Did i select the answers for the follow-up questions correct? So is this taxable but MAGI is not reduced by the amount? Do I have to remove the excess contribution before filing 2022 returns?

[DanaB27]

Yes, you answered the questions correctly if you made an in-plan Roth Rollover.

Yes, this will be included in your MAGI calculation for Roth IRA contributions (please see Worksheet 2-1 for details).

You will have to pay the 6% penalty on your 2021 since the excess plus earnings were not removed by the extended due date of the 2021 tax return. If you are able to make Roth IRA contributions on your 2022 tax return then you can absorb the 2021 excess otherwise you will have to pay the 6% penalty for the 2021 excess on your 2022 tax return as well. 

If you can't absorb the 2021 excess contribution on your 2022 tax return then you will remove the excess contribution for 2021 with a regular distribution (without the earnings) since you missed the deadline (extended due date of the 2021 tax return). You will receive a 2023 Form 1099-R with code J which will be entered next year on your 2023 tax return (please make sure you enter your net Roth contributions in the follow-up questions).

On your 2021 tax return when you entered the Roth contribution TurboTax automatically calculated the 6% penalty on Form 5329.

On your 2022 tax return:

1. Open your return
2. Click “Deductions &Credits” on the top
3. Click "I'll choose what to work on"
4. Scroll down to “Traditional and Roth IRA Contributions” and click “Start”
5. Select “Roth IRA”
6. On the "Do you have any Excess Roth Contributions" answer "Yes"
7. On the "Enter Excess Contributions" screen enter the total excess contribution from 2021 (if it wasn't carried over).
8. On the "How Much Excess to 2022?" screen enter how much you want to apply to 2022 (if you haven't made the max contribution for 2022).

@Suka1