Self employed, put money into Roth IRA, where is this located in turbotax?

[untuit]

We are self employed. In year 2023 for the first time we put money into a Roth IRA, for my wife, for years 2022 and 2023. In my original run through with turbo tax I didn't deal with the Roth IRA. Now I need to enter that information, but can't find it. Where is this located in turbotax?

[untuit]

I found the right section with the help of this

https://ttlc.intuit.com/turbotax-support/en-us/help-article/retirement-benefits/enter-traditional-ro...

However a new question. The form only mentions contributions for 2023; that's all it seems to offer. Was it a mistake to have put money into a Roth IRA for 2022? She's never put money into a Roth IRA before. She put the money into the Roth accounts for both years in Feb 2023. I didn't know this and didn't include the year 2022 deposit in our 2022 tax filing. Is that a mistake/not a mistake; and if not a mistake can I enter it into the 2023 filing somehow, or do I even need to?

[VolvoGirl]

Just enter the 2023 amount into 2023.   You should amend 2022 to add it but a ROTH is not deductible so it won't change your return and you don't need to file an amended return.  When she made the contributions did she tell the plan one was for 2022?  You probably should amend 2022 to make sure she didn't make an excess contribution.  And are you filing 2 schedule Cs, one for each of you?  

If you have self-employment income you can only contribute up to your net profit reduced by the deduction allowed for the ER portion of your self-employment taxes. That amount will be on Schedule 1 line 15 which goes to 1040 line 10.

[untuit]

Oh this is a real bummer. Now that I've looked into this, we're over the amount that allows any Roth IRA input, for both 2022 and 2023.

I'm not sure how to proceed with this. We need to pull the money out of the Roth IRA account. Since neither of the deposits to the Roth IRA were ever reported to the IRS on our tax forms, do we need to tell them that we're pulling the funds out? Technically I'm sure we should; and I'm sure that somewhere the IRS has a report from our brokerage about the Roth IRA deposits. But will the IRS do anything about it if we just withdraw the funds? I would like to keep it simple on the paperwork side. Reporting for example the deposit for year 2023 when it was a mistake and must be undone, does it make sense to do that?

[PatriciaV]

Yes, TurboTax will help you report the excess contribution and the withdrawal.

If you contribute too much to your IRA, you will be taxed 6% on your contribution that has exceeded the limit. Any contribution withdrawn on or before the return filing due date, which includes extensions, is treated as if it were not contributed. This treatment only applies if any earnings on the contributions are also withdrawn. The earnings are considered earned and received in the year the excess contribution was made and are taxable.

After you enter your Roth IRA Contributions, TurboTax will ask how much of the excess contribution you will withdraw before the due date of your tax return so the appropriate adjustment can be made.

[untuit]

Thank you for the helpful reply. When reporting an excess contribution, ttax asks if we recharacterized any of the contribution to a traditional IRA. That might avoid the 6% penalty. But one thing I don't understand is that we've already paid income tax on the amounts we put into the Roth IRA; and which a traditional IRA, withdrawals are taxed as income. We don't want to pay income tax twice on the same money. Would the amounts that have already been taxed somehow be flagged, and not be taxable in the future?

[untuit]

Several other questions related to this.

[1] the 2022 contribution to the roth took place in Feb 2023. We are hoping that switching this to a TIRA will help us to avoid the 6% penalty. But if there is a 6% penalty, that's supposed to be for every year, and I think the date of the start of that year period would be date of the excess contribution. If they do penalize for the excess Roth despite the transfer to a TIRA will it then be for 12%? it's only 13 months.

[2] if it is a sure thing that they will penalize for the excess Roth for 2022 tax year, is there any reason to move that portion to a TIRA? Otherwise we might choose to just pull the money out.

[3] I guess the same would apply to the 2023 Roth excess contribution, which was also made in Feb 2023. I've not filed yet for 2023; will they assess a penalty of any kind if we move that to a TIRA before I file taxes?

[DanaB27]

The 2022 contribution cannot be recharacterized since it is after the due date. To avoid the 6% penalty for 2024 you will have to withdraw the excess contribution (without earnings and losses) by December 31, 2024. Please request a regular distribution.

You will have to pay the 6% penalty on your 2022 and 2023 tax return for the 2022 excess contribution. You enter the Roth IRA contribution on your 2022 tax return and TurboTax will calculate the penalty on Form 5329. Please see How do I amend my federal tax return for a prior year?

On the 2023 you will enter the excess contribution from prior years and TurboTax will calculate the penalty on Form 5329:

1. Click on "Search" on the top right and type “IRA contributions”
2. Click on “Jump to IRA contributions"
3. Select “Roth IRA”
4. On the "Do you have any Excess Roth Contributions" answer "Yes"
5. On the "Enter Excess Contributions" screen enter the total excess contribution from 2022

You will repeat the steps on your 2024 return and the excess contribution will resolve on your 2024 return when you enter the 2024 Form 1099-R with code J (assuming you are under 59 1/2) for the withdrawal of the 2022 excess contribution. 

No, you won't pay the 6% penalty on the 2023 excess contribution if you recharacterize the 2023 Roth IRA contribution as a traditional IRA contribution.

You will enter the recharacterization when you enter the contribution to the Roth IRA 

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “IRA contributions” 
3. Click on “Jump to IRA contributions"
4. Select “Roth IRA”
5. Answer ‘Yes” on the “Roth IRA Contribution” screen
6. Answer “No” to “Is This a Repayment of a Retirement Distribution
7. Enter the Roth contribution amount 
8. Answer “Yes” to the recharacterized question on the “Switch from a Roth To a Traditional IRA?” screen and enter the contribution amount (no earnings or losses) on the next screen.
9. 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.
10. On the screen "Choose Not to Deduct IRA Contributions" answer "Yes" if you are thinking about doing a backdoor Roth. Otherwise select "No". (If you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a warning and then a screen saying $0 is deductible)

You will get a 2024 Form 1099-R  for the recharacterization with code R-Recharacterized IRA contribution made for 2023 and this belongs on the 2023 return. But a Form 1099-R with code R will do nothing to your return. You can only report it as mentioned above. Therefore, you can ignore the Form 1099-R with code R when you get it in 2025.

Please be aware, you won't be double taxed. When you recharacterize the Roth IRA contribution as traditional IRA contribution you might be able to deduct the traditional IRA contribution. If you cannot deduct the contribution because of a work retirement plan and your income then you will have a basis that will be reported on Form 8606. When you take distributions then the part allocated to the basis will be non-taxable .

Please see What happens if I made an excess Roth IRA contribution for additional information.

[frustrated1098]

What does ER stand for?

[CatinaT1]

Where are you seeing this referenced?

[VolvoGirl]

@frustrated1098   ER stands for employer.  EE is for employee.

[untuit]

Thanks DanaB27 that's a really spectacular response. I think I understand it but I will post back if I have questions.

[untuit]

It's not working so far.

Steps I took to amend 2022 (not filed)

1. started an amendment based on my previous amendment (made a year ago)
2. jump to the roth ira section and check the relevant person
3. it is not a repayment
4. enter 7000 as the contribution
5. how much was recharacterized? $0
6. did not open before 2022
7. the value of the roth on Dec 31 2022 was $0. She contributed to the 2022 roth in Feb 2023.
8. notice that income is too high to contribute
9. contribution withdrawn before due date of return: $0
10. Done with deductions
11. I enter amendment message: Reporting excess Roth IRA contribution on $7000
12. Amendment return summary: we don't detect any differences between your original return and your amended return.

It didn't calculate a penalty? It does state the amount on one of the step by step pages, but ttax itself lists nothing (fed and state boxes at the top) owing to IRS. You mentioned form 5329; I have a 5329-S. It shows $7000 excess contribution.

I thought ttax would compute the penalty and I'd send the amount due to the IRS when I file?

Also, you wrote "To avoid the 6% penalty for 2024 you will have to withdraw the excess contribution (without earnings and losses) by December 31, 2024." If I withdraw $7000 from the Roth by the end of this year, as  regular distribution...what about the earnings on that money while it was in the Roth? My spouse should never have opened the Roth; we can't just leave earnings in there to never be withdrawn, right?