MAGI calculation for determining excess IRA roth contribution appears incorrect with turbo tax online

[bb99]

When using turbo tax premier online 2021, it looks like turbo tax is including Roth conversions in the calculation of MAGI for determining excess contributions to a roth IRA.  According to the IRS publication 590-A(2021), the MAGI for determining the allowed roth  income contribution should exclude Roth conversions.  Has anyone else run into this? Is there a way around this or is this a bug in the software? 

[bb99]

It turns out that the code in box 7 of the 1099-R for the Roth Conversion is key.  If it is a 7 - Normal Distribution then turbo tax calculates the MAGI as expected for determining allowed Roth IRA contributions.  My code in box 7 is a G – Direct Rollover and Direct Payment.  Turbo Tax handles this differently.  I don’t know the nuances of all the box 7 codes. I will assume turbo tax knows what they are doing!

[MarcV]

Turbotax still hasn't fixed this issue despite it being flagged for several years.  I tried to change it to G, even though 7 is on my 1099 for Roth Conversion.    And got hit with further obstacles.  Roth Conversions are quite common so you would think they could at least take the time to fix this.  Especially since they are the most widely used tax software.  Frustrating AF. 

[AnnetteB6]

You did not explain what situation you are seeing with your return so I am going to make some assumptions.  If this is not your situation, please add more details.

If you are entering a Form 1099-R reporting a distribution from a Traditional IRA which has been converted to a Roth IRA and the distribution code is 7, then you should not be entering any information in the Roth IRA contributions section of your return.  Entering a Roth IRA contribution is the only time that the Modified AGI for contributions would come into play.  A conversion is not the same thing as a contribution and should not be entered as a contribution to the Roth IRA.

After the Form 1099-R has been entered, there are follow-up questions to answer which will ask what was done with the money.  This is where you indicate that the funds were converted in part or whole to a Roth IRA.  That's all you need to do to report the conversion.  There is no MAGI limit associated with this.

Also, you should never change the Form 1099-R distribution code to be different than the form you received.  That distribution code helps to determine whether the distribution is taxable.

@MarcV 

[dmertz]

Given correct entry of this Form 1099-R, TurboTax will correctly calculate the MAGI for the purpose of the limitation on Roth IRA contributions.

Code G with the IRA/SEP/SIMPLE box unmarked and a taxable amount in box 2a can mean a either a direct rollover to  a Roth IRA or an In-plan Roth Rollover (IRR) to a designated Roth account in an employer-provided plan.  You must tell TurboTax which type of rollover was done.  Only a rollover to a Roth IRA is permitted to be subtracted from AGI for this purpose, subtraction of the taxable amount of an IRR is not.