topic 2020 TurboTax Premier Roth Conversions have our income past limit, but not flagging our Roth Contributions in Retirement tax questions

2020 TurboTax Premier Roth Conversions have our income past limit, but not flagging our Roth Contributions

MikeJoe — Wed, 17 Mar 2021 21:51:49 GMT

2020 TurboTax Premier Roth Conversions have our income past limit to contribute to a Roth, but it's not flagging our Roth Contributions as past the limit.

The AGI amount on Line 11 of our 1040 has the amount of 261k, because of Roth Conversions. Without the conversions our total would be about 170k married, filing jointly (and MAGI wouldn't change it enough or at all). The Roth contribution of 6,000 was a direct contribution. It wasn't done as a back door Roth as non-deductible contributions to a traditional IRA then rolled over. From what I can see of the IRS rules, the Roth Conversions aren't an exception to a calculation for figuring income limits for Roth Contributions.

What are my options for handling this? List it as an excess contribution and pull the money out. Leave it an pay a 6% fee, or Leave it in with some alteration, to make it an acceptable contribution for 2020?

If the third option is possible, I'd prefer that, but I don't want to do anything questionable.

Re: 2020 TurboTax Premier Roth Conversions have our income past limit, but not flagging our Roth ...

DanaB27 — Sun, 21 Mar 2021 11:39:40 GMT

Option 1

You can recharacterize the Roth contribution as a traditional IRA contribution, make it nondeductible and then later convert it to the Roth (backdoor Roth contribution).

If you want to recharacterize the contribution you need to request this with your bank before the due date. You will enter the recharacterization when you enter the contribution to the Roth IRA

Login to your TurboTax Account
Click on "Search" on the top right and type “IRA contributions”
Click on “Jump to IRA contributions"
Select “Roth IRA”
Answer “No” to “Is This a Repayment of a Retirement Distribution
Enter the Roth contribution amount
Answer “Yes” to the recharacterized question on the “Did You Change Your Mind?” screen and enter the contribution amount (no earnings or losses)
TurboTax will ask for an explanation statement where it should be stated that the original $xxx.xx plus $xxx.xx earnings (or loss) were recharacterized.
On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" (if you are thinking about doing a backdoor Roth. If you have a retirement plan at work and are over the income limit it will be nondeductible and you only get a screen saying $0 is deductible)

Option 2

You can request to withdraw the excess contribution and earnings by the due date. The earnings will be included in the taxable income for the year in which the excess contribution was made. Please keep in mind that this will increase your MAGI again. Therefore, you might have to withdraw some extra excess contribution to not be caught in a loop.

If you are under 59 ½ then you will have an 10% early withdrawal penalty on the earnings.

If you withdrew a 2020 excess contribution plus earnings in 2021 before the due date, then you will get a 1099-R 2021 in 2022 with codes P and J. This 1099-R will have to be included on your 2020 tax return and you have two options:

You can wait until you receive the 1099-R 2021 in 2022 and amend your 2020 return or
You can report it now in your 2020 return and ignore the 1099-R when it comes unless there is Box 4 Federal Tax withholding and/or box 14 State withholding. Then you must enter the 2021 1099-R into the 2021 tax return since the withholding is reported in the year that the tax was withheld. The 2021 code P will not do anything in 2021 tax return but the withholding will be applied to 2021.

To create a 1099-R in your 2020 return please follow the steps below:

Login to your TurboTax Account
Click on the Search box on the top and type “1099-R”
Click on “Jump to 1099-R”
Answer "Yes" to "Did you get a 1099-R in 2020?"
Select "I'll type it in myself"
Box 1 enter total distribution (contribution plus earning)
Box 2 enter the earnings
Box 7 enter P and J
Click "Continue"
On the "Which year on Form 1099-R" screen say that this is a 2021 1099-R.

Option 3

Leave the excess contribution in the Roth IRA and apply it to next year’s contribution if you expect your MAGI to be lower. You will have to pay the 6% excess contribution penalty for 2020. When you file your 2021 return you will be able to apply the excess contribution as a 2021 contribution during the interview.

Option 4

If you had a decent amount of earnings, then you might want to wait to remove the excess contribution until after the due date of the return. Then you can request a regular distribution to remove the excess contribution (without earnings) between October 15 and December 15, 2021. You will have the 6% excess contribution penalty on the 2020 return but you can keep the earnings in the Roth account.

Conversions are not included in the MAGI for Roth IRA purposes: Worksheet 2-1. Modified Adjusted Gross Income for Roth IRA Purposes.

[Edited 3/21/2021 5:00am PST]

Re: 2020 TurboTax Premier Roth Conversions have our income past limit, but not flagging our Roth ...

MikeJoe — Sat, 20 Mar 2021 23:52:35 GMT

Thank you so much for the reply. I have two excess returns, and that is a big help.

On the original issue, after hours of searching I did find IRS publication 590. The formula is listed there, and it does exclude the conversions. So TurboTax did calculate it correctly, and the and the previous examples I found where only considered AGI (MAGI) without considering the worksheet.

https://www.irs.gov/publications/p590a#en_US_2020_publink[phone number removed]

1. Enter your adjusted gross income from Form 1040, 1040-SR, or 1040-NR, line 11 1. _____
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) 2. _____
3. Subtract line 2 from line 1 3. _____