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KCinIN
Returning Member

TurboTax says excess contribution to traditional IRA

I had contributed to a Roth account prior to completing my TurboTax entries, only to find I was over the limit for a Roth contribution.  So, I am in the process of recharacterizing my Roth contributions as traditional IRA contributions, including reporting the recharacterization in TurboTax.  I was expecting TurboTax to confirm that I was making a "non-deductible" contribution to my traditional IRA.  Instead, TurboTax is telling me I am making an "excess" contribution to my traditional IRA and that I am subject to the excess contribution penalty.
My questions:
1. I didn't think one could make an excess contribution to a traditional IRA, that excess only applied for a Roth IRA.  Why would this contribution trigger an excess contribution penalty warning?

2. I am over 50 so the $7000 involved should not be "excess" anything.  With the recharacterization I should be contributing at my limit to the traditional IRA, and no penalty should apply.  Why the warning?

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2 Replies
KCinIN
Returning Member

TurboTax says excess contribution to traditional IRA

I may have stumbled across the answer to this.  When I went back to the IRA contributions summary in TurboTax it showed a total of $14000, not the $7000 I thought I was indicating in the entry screens.  It seems TurboTax understands the "I contributed $7000 to a traditional IRA" and the "I recharacterized my $7000 Roth contribution to my traditional IRA" as separate entries and not two sides of the same action.  By stating I did not contribute to my traditional IRA and using only the recharacterization of my Roth contribution to my traditional IRA I get the response from TurboTax that I expected.
I would love it if someone from TurboTax can confirm this is the correct approach for my situation.

DanaB27
Expert Alumni

TurboTax says excess contribution to traditional IRA

Yes, that is correct. When you recharacterize a Roth contribution then you will not enter it as a traditional IRA contribution but 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 “No” to “Is This a Repayment of a Retirement Distribution
  6. Enter the Roth contribution amount 
  7. Answer “Yes” to the recharacterized question on the “Did You Change Your Mind?” screen and enter the contribution amount (no earnings or losses)
  8. 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.
  9. 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 automatically and you only get a warning and then a screen saying $0 is deductible)

 

 

 

You will get Form 1099-R  for the recharacterization with code R-Recharacterized IRA contribution made for 2021 and this belongs on the 2021 return. But a 1099-R with code R will do nothing to your return. You can only report it as mentioned above. Therefore, you can ignore the 1099-R with code R when you get it in 2023. The box 1 on the 1099-R will report the total recharacterized amount (contribution plus earnings) but it does not separately report the earnings and box 2a must be zero.

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