Turbo-Tax Error in calculating MAGI for 2022 Roth IRA Contribution Limit Worksheet?

[KPTyra]

I've been doing some projections for next year's taxes and noticed a potential TurboTax error on Line 1 on your 2022 Roth IRA Contribution Limit Worksheet.

(1) It doesn't appear that the MAGI calculation on Line 1 on that sheet accounts for taxable income resulting from a Traditional IRA to Roth Conversion. The MAGI reported on Line 1 does not reflect any Roth Conversion income, which causes errors in the 2022 Roth Contribution amounts and eligibility. The taxable income from my Roth Conversions HAVE BEEN CORRECTLY REPORTED on Lines 4a/4b on the 1040 form.

(2) I also note that the MAGI calculation on Line 1 on the same worksheet is NOT correctly adding back in any NON-TAXABLE Social Security Income that is normally excluded from AGI. Again, these values HAVE BEEN CORRECTLY REPORTED on Lines 6a/6b on the 1040 form.

You may want to take a look at these issues. Thanks.

[Critter-3]

Even though the downloaded program comes out sometime in November each year it is only a beta version which will not be fully operational until  late January at the earliest (much later for some forms and the state programs).  Efiling will not be open until late January at best so do not be in a rush to file.

Same with the Online version which becomes functional sometime in December. 

 http://taxpreparationsoftware.com/

If you are trying to do some 2022 tax planning then use the fully operational 2021 downloaded version instead. 

This is my mini version of  a tutorial  that should be in the downloaded program: 

 

What is Forms Mode?

Forms Mode lets you view and make changes to your tax forms "behind the scenes."

If you're adventurous, you can even prepare your return in Forms Mode, but we don't recommend it. You may miss obscure credits and deductions you qualify for, and you may forget to report things that will come back and haunt you later.

Forms Mode is exclusively available in the TurboTax CD/Download software. It is not available in TurboTax Online.

Related Information:

• Why would I use Forms Mode?
• How do I switch to Forms Mode in the TurboTax for Windows software?
• How do I switch to Forms Mode in the TurboTax for Mac software?
• What is-the-meaning-of-all-the-different-colors-in-forms-mode
• How to delete a form

If you want to play around with different figures and tax scenarios without affecting your original return you can ….

• >>>In the TurboTax CD/Download software by creating a test copy: 
• 1.  Open your return in TurboTax. 
• 2.  From the File menu, choose Save As. 
• 3.  Give the copy a new name to distinguish it from the original (for example, by adding "Test" or "Example" to the file name). 
• 4. Click  Save. You are now safely working in the test copy and anything you do here will not affect the original. 
•  https://ttlc.intuit.com/questions/1900642-how-to-make-a-test-copy-of-your-return

• >>  use the WHAT IF tool: 
• - Click Forms Icon (upper right of screen) or Ctrl 2 (forms view) 
• - Click on the Open Form Icon 
• - In the “Type a form name.” area type What-If (with the dash), click on the name of the worksheet - click on Open Form 
• - You will see the worksheet on the right side of the screen; enter the information right into the form 
• - To get back to interview mode - click on the Step-by-Step Icon (upper right of screen) or Ctrl 1

Once you have filed successfully … you can shut off the auto updater function and then save the return &  .taxfile.

For Windows, up in the top menu, you  can set the  "Updater Preferences" to "Always Ask" or more commonly set to "I don't have an internet connection"  (even if you do), and then you are not forced to update....and can manually force an update when you choose to do so.   And then you can open the file(s) at any time with no forced upgrade.

But that's the Windows software.....not a MAC. For a MAC you cannot turn off the auto updater  HOWEVER  you can simply disconnect from the internet before opening the tax return.

It's always a good idea to make a backup copy of your tax data file, in case your original gets lost or corrupted. Here's how:

1. From the File menu in the upper-left corner of TurboTax, choose Save As (Windows) or Save (Mac).
2. Browse to where you want to save your backup.
   • Tip: If you're saving to a portable device, save it to your computer first to prevent data corruption. Then, after completing Step 4, copy or move the backup file to your device.
3. In the File name field, enter a name that will distinguish it from the original tax file (for example, add "Backup" or "Copy" to the file name)
4. Click Save and then close TurboTax.
5. Restart TurboTax and open the backup copy to make sure it's not corrupted. If you get an error, delete the backup and repeat these steps.

If you make changes to your original tax return file, repeat these steps to ensure your original and backup copies are in-synch.

Related Information:                             

• Retrieve a Tax File from a Portable Device
• What's the difference between the tax data file and the PDF file?

AND save it as a PDF so you have access to a copy even if you don’t have the program still installed and operational :

• How do I save my return as a PDF in the TurboTax software for Windows?
• How do I save my return as a PDF in the TurboTax software for Mac?

AND protect the files :

• How can I protect the tax files on my computer?

*** Other clues to the downloaded program ***

In the forms mode ... double click  or right click on a box on a form to data source it ... sadly it doesn't work on all boxes. 

What's the meaning of all the different colors in Forms Mode?

When you look at an onscreen tax form using Forms Mode, you might wonder why one figure is blue and the one next to it is red or black.

These colors indicate the source of that data.

Color	Meaning
Blue	You entered this data, either in the interview or Forms Mode.
Black	The program entered this data or calculated this amount.
Red	This data has either been overridden or is invalid (for example, a ZIP code that doesn't exist).
Red italics	You marked this amount as estimated.
Black italics	The program calculated this amount from an amount you marked as estimated.
Purple	This information has supporting details.
Aquamarine	This data was transferred over from last year.
Green	This data was imported from Quicken or QuickBooks.
Yellow fields (Windows)	Yellow fields allow user input. Anything you enter here shows up in blue.

[rjs]

It's not an error. The calculations are correct.

MAGI is not a single number. There are about a dozen different definitions of MAGI, depending on what it is being used for. MAGI for the Roth IRA contribution limit is different from MAGI for other purposes. You might be looking at a definition of MAGI for a different purpose.

(1) The income from the Roth conversion is supposed to be subtracted from your AGI.

If you are using the CD/Download TurboTax software, open the Roth IRA Contribution Limit Worksheet in forms mode. Right click line 1 and click Data Source on the pop-up menu. The explanation of line 1 says "Any amount due to a Roth conversion is subtracted out."

Also, in IRS Publication 590-A, look at Worksheet 2-1, Modified Adjusted Gross Income for Roth IRA Purposes on page 39. The first three lines of that IRS worksheet subtract "income resulting from the conversion of an IRA . . . to a Roth IRA" from your AGI.

(2) The non-taxable portion of your Social Security income is not supposed to be added back. The taxable amount of Social Security can be recalculated using your income after subtracting the Roth conversion income. But there is still a non-taxable amount of Social Security that is excluded from AGI. The recalculation does not apply, and will have no effect, unless your income is above the phaseout threshold for reducing your Roth IRA contribution limit. In Publication 590-A see the note at the bottom of Worksheet 2-1 and follow the instructions there.

[Mike9241]

No error. Turbotax is doing the calculation correctly

my tax handbook says the following for line 1 of the ROTH contribution worksheet

enter MAGi. footnote says to subtract income from ROTH conversion from MAGI

PUB 590A Roth worksheet

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

[oldunixguy]

as of this day, 2023-04-12 I am running the latest, updated TT home and bus. I used the IRS Pub 590a worksheets 2-1 and 2-2. Yes, I correctly entered my IRA to Roth conversion on 2-1 line 2 and the 1040 line 11. On Pub 590 WS 2-1 lines 4 thru 9 are ALL 0. I'm married and so line 11 is 214000. this correctly figures my roth magi. I carry that to Pub 509 WS 2-2 line 1 and on line 2 enter the much larger 204000. Because my taxible compensation is 2890 then this form results on line 11 of 2890. BUT BUT BUT on the TT worsheet the Roth IRA contribution limit worksheet line 1 is way wrong. it is almost 1/2 of my Pub 590 roth magi. The result of this error is that the Roth contribution I want to send NOW is reduced a lot from what the Pub 590 WS show as 2890!!! Something is STILL not correct with TT.  And it is getting REALLY LATE to get it fixed so I can put in the correct numbers and send my FULL contribution to my Roth fund.

[Critter-3]

@oldunixguy 

I think you may be confused ... if you made and entered a non deductible IRA contribution then converted it to a ROTH there should be no ROTH contribution reported at all ... a conversion is not a contribution. 

The "Backdoor Roth" does not exist in tax law. It is a procedure used by some to take advantage of a quirk in tax law that allows making a non-deductible contribution to a Traditional IRA when one cannot contribute to a Roth IRA, and the immediately converting the Traditional IRA to a Roth IRA, thereby getting the money into the Roth via "backdoor".

That "procedure" can only work of all these requirements are met:
1) No Traditional IRA account whatsoever can exist (that includes any SEP or SIMPLE IRA accounts) at the start.
2) The Tradition IRA contributions must be reported on a 8606 form as non-deductible.
3) The conversion to a ROTH must be shortly after the contribution to avoid taxable gains.
4) The entire Traditional IRA value must be zero that the end of the year of conversion.

Otherwise the conversion will be partly taxable.

First you must enter your Traditional IRA contributions (if there were 2020 contributions).

IRA contribution
Federal Taxes,
Deductions & Credits,
I’ll choose what I work on (if that screen comes up),,
Retirement & Investments,
Traditional & Roth IRA contribution.

Be SURE to answer the follow up that you  are choosing to make this contribution NON-DEDUCTIBLE - if that screen comes up. (DO NOT say that you moved (recharacterized) the money to a Roth) – this is a conversion, not a recharactorazition.

Then enter the 1099-R that shows the distribution.

Federal Taxes,
Wages & Income
I’ll choose what I work on (if that screen comes up),,
Retirement Plans & Social Security,
IRA, 401(k), Pension Plan Withdrawals (1099-R).

Answer the follow-up questions answer the question that you moved the money to another retirement. The screen will open up with choices of where it was moved. Choose you converted it to Roth IRA.

When asked if you have made any non-deductible contributions say " "yes" if you did then enter the non-deductible contributions made for tax years before 2021.     (Usually zero unless you also made a 2020 or earlier non-deductible contribution. If you do have prior year basis then enter the last filed 8606 line 14 value.).

Enter the 2022 year end value of your Traditional IRA a "0" (zero) - if it is in fact zero - this tax free Roth conversion will not work if it is not zero.

[If you had any other Traditional IRA at the end of 2022, then the nondeductible "basis" must be pro-rated over the current distribution and the total IRA value and only a portion of the Roth conversion will be non taxable and part will be taxable, with the remaining non-deductible basis carrying forward for future distributions. You can never only withdrew the nondeductible basis as long as the IRA exists and has a value more than zero.]

The non-deductible amount of your contribution will be subtracted from the taxable amount of the conversion on then 8606 form and enter on line 4a of them 1040 form and a zero taxable amount on line 4b if you did it right.

Also see this TurboTax FAQ:
https://ttlc.intuit.com/questions/4350747-how-do-i-enter-a-backdoor-roth-ira-conversion

[oldunixguy]

I have not digested what you wrote yet.... but to answer something you raised.... I did 1) in 2022 a traditional IRA to Roth conversion and 2) this month before the deadline will contribute <3000 to my Roth since I had only that approximate amount of compensation in 2022. So BOTH events are involved.

regards

[bwp50]

I too did my tax planning in Mid December 2022 and I believe there was an error in the TurboTax program at that time but I cannot prove it.

I entered all my data in Dec and it showed that I was in the 10% bracket almost in the 12%.  I figure that 12% might be a reasonable rate to make a Roth conversion(Taxes should be increasing). I incrementally increased my 1099R numbers until it was showing I was close to the 22% bracket. I would increment say $1000 and TurboTax would show $120 tax.  So when it showed more tax I know I hit the 22% bracket.  This technique showed that I could make about a $30,000 conversion and pay increased taxes of about $3300.  Which seemed reasonable.

Last week I started my taxes and just started a new tax return as I estimated a few things on my December planning and did not want to get some numbers confused.  To my surprise the $30,000 increased my taxes by about $9000.  $9000/$30000 = about 30% tax rate!!  So I thought I entered something wrong but could not find anything.  I pulled up my December data file and the current program shows about $9000 not the about $3300 it did in December.  While I would like to just undo the conversion(recharacterization), this does not seem possible because of 2017-2018 tax law changes.  Does anyone have any suggestions?  I would not have made the conversion if I had gotten the correction information.