2023 TurboTax Bug With NonDeductible IRA

[thendric1956]

My TurboTax Token Number is 1246420. I have encountered a bug. My wife and I each contributed $7,500 to an IRA. I entered this information into turbotax. However, when it processed my information it disallowed my ira because my annual earnings were over the maximum allowed. It generated form 8606 to indicate my $7,500 was nondeductible. However, it failed to add the $7,500 back into my taxable income. Therefore my taxable income was understated and my refund was overstated. My refund should have been $4,755 but turbotax generated a refund of $6,405. thendric1956 [email address removed]

[maglib]

@thendric1956 

I don't see your return as I don't work for TT. It disallowed your IRA so not to give you a deduction for investing in an IRA..... there is no add back, just no deduction of income.

Example AGI say is $300k,  your IRA deductions is $0.  6% penalty if you don't withdraw  the funds every year.

If your income had been $150k and you were eligible,  your  taxable AGI would have dropped to $142,500

Just make sure to withdraw the funds and any earnings so you dont continue to be charged the 6% fee annually.  Here was steps you needed to  do:

To enter the nondeductible contribution to the traditional IRA:

1. Open your return
2. Click “Deductions &Credits” on the top
3. Click "I'll choose what to work on"
4. Scroll down to “Traditional and Roth IRA Contributions” and click “Start”
5. Select “traditional IRA”
6. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
7. Enter the amount you contributed
8. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
9. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had nondeductible contributions before this tax year
10. Enter your basis in the Traditional IRA from your 2022 Form 8606 line 14 (if you had a basis in the prior year)
11. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount (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).

To enter the 1099-Rs for the return of excess contribution and the  conversion: 

1. Click "Federal Taxes" on the top and select "Wages & Income"
2. Click "I'll choose what to work on"
3. Scroll down and click "Start" next to "IRA, 401(k), Pension Plan (1099-R)" 
4. Answer "Yes" to the question "Did You Have Any of These Types of Income?"
5. Click "I'll Type it Myself"
6. Choose "Form 1099-R, Withdrawal of Money from 401(k) Retirement Plans, Pensions, IRAs, etc."
7. Click "Continue" and enter the Form 1099-R for the returned Roth IRA contribution
8. On the "Your 1099-R Entries" screen click "Add Another 1099-R" and enter the Form 1099-R for the conversion
9. Answer questions until you get to “What Did You Do With The Money” and choose “I moved it to another retirement account”
10. Then choose “I did a combination of rolling over, converting, or cashing out money.” and enter the amount next to "Amount converted to a Roth IRA account"
11. On the "Your 1099-R Entries" screen click "continue"
12. Answer "yes" to "Any nondeductible Contribution to your IRA?" if you had any nondeductible contributions in prior years.
13. Answer the questions about the basis from line 14 of your 2022 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

As this is a public board, you need to contact tt directly if that is not what happened: contact TT at (800) 446-8848.

Related Information:

• What is the TurboTax phone number?
• How do I request a refund for my TurboTax product?
• How do I connect with a tax expert in TurboTax Live?
• How do I update my TurboTax account info?
• Request to access your TurboTax Account

[maglib]

To enter the nondeductible contribution to the traditional IRA:

1. Open your return
2. Click “Deductions &Credits” on the top
3. Click "I'll choose what to work on"
4. Scroll down to “Traditional and Roth IRA Contributions” and click “Start”
5. Select “traditional IRA”
6. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
7. Enter the amount you contributed
8. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
9. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had nondeductible contributions before this tax year
10. Enter your basis in the Traditional IRA from your 2022 Form 8606 line 14 (if you had a basis in the prior year)
11. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount (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).

To enter the 1099-Rs for the return of excess contribution and the  conversion: 

1. Click "Federal Taxes" on the top and select "Wages & Income"
2. Click "I'll choose what to work on"
3. Scroll down and click "Start" next to "IRA, 401(k), Pension Plan (1099-R)" 
4. Answer "Yes" to the question "Did You Have Any of These Types of Income?"
5. Click "I'll Type it Myself"
6. Choose "Form 1099-R, Withdrawal of Money from 401(k) Retirement Plans, Pensions, IRAs, etc."
7. Click "Continue" and enter the Form 1099-R for the returned Roth IRA contribution
8. On the "Your 1099-R Entries" screen click "Add Another 1099-R" and enter the Form 1099-R for the conversion
9. Answer questions until you get to “What Did You Do With The Money” and choose “I moved it to another retirement account”
10. Then choose “I did a combination of rolling over, converting, or cashing out money.” and enter the amount next to "Amount converted to a Roth IRA account"
11. On the "Your 1099-R Entries" screen click "continue"
12. Answer "yes" to "Any nondeductible Contribution to your IRA?" if you had any nondeductible contributions in prior years.
13. Answer the questions about the basis from line 14 of your 2022 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

[thendric1956]

The problem is that even though it did not allow the IRA and tt entered it as non deductible it still deducted the $7,500 from income as if it had allowed the ira

[maglib]

@thendric1956   did you do the whole interview like I reported above?   Can you drill down within the deductions and look at the supporting forms?  Possibly delete them and go through the interview again?  I left you the number to call TT directly.  

If this is what happened, make sure to pay the additional taxes due through EFTPS.gov or IRS2Go