Excess Roth contribution erroneously indicated - 2023 taxes

[katmclernon]

Turbotax told me I had to back out my 2023 Roth contributions - which I did. But in researching how to report the income on the earnings that also had to come out I now see that was wrong! It told me my income was over the limit - but it included my large IRA to roth IRA conversion in that income. 
2 questions - 1 - is there any way to undo the backout? 

2 - will Turbotax compensate me for this error given it is going to cost me several hundred dollars in taxes?

Kindly respond with urgency

[DanaB27]

I cannot recreate the issue that TurboTax is including the Roth conversion in the MAGI on the Roth IRA Contribution Limit Worksheet. 

There is an issue with line 1 of the Modified Adjusted Gross Income for Roth IRA Purposes Worksheet where TurboTax is using line 1z of the 1040 (FAQ). But this issue excludes income and doesn't seem to apply to your situation.

It would be helpful to have a TurboTax ".tax2023" file that is experiencing this issue. You can send us a “diagnostic” file that has your “numbers” but not your personal information. If you would like to do this, here are the instructions for TurboTax Online: 

1. From the left menu select Tax Tools. 
2. Then select Tools below Tax Tools. 
3. A window will pop up which says Tools Center.  
4. On this screen, select Share my file with Agent. 
5. You will see a message explaining what the diagnostic copy is. Click okay through this screen and then you will get a Token number. 
6. Reply to this thread with your Token number and add @DanaB27 . This will allow us to open a copy of your return without seeing any personal information.  

The instructions for TurboTax Download: 

1. On your menu bar at the very top, click "Online"
2. Select "Send Tax File to Agent"  
3. Click "Send"
4. The pop-up will have a token number
5. Reply to this thread with your Token number and add @DanaB27 . This will allow us to open a copy of your return without seeing any personal information.  

We will then be able to see exactly what you are seeing and we can determine what exactly is going on in your return and provide you with a resolution.

Question 1)

If you requested the return of an excess contribution plus earnings with your financial institution then you most likely cannot undo it and will have to report the earnings. But please check with your financial institution.

You will get a 2024 Form 1099-R  in 2025 with codes P and J for the withdrawal of excess contributions and earnings. This 1099-R will have to be included on your 2023 tax return and you have two options:  

• You can wait until you receive the 2024 Form 1099-R in 2025 and amend your 2023 return or
• You can report it now in your 2023 return and ignore the 1099-R when it comes unless there is Box 4 Federal Tax withholding and/or Box 14 State withholding. Then you must enter the 2024 Form 1099-R into the 2024 tax return since the withholdings are reported in the year that the tax was withheld. The 2024 code P will not do anything to the 2024 tax return income but the withholdings will be applied to 2024.

To create a Form 1099-R in your 2023 return please follow the steps below:

1. Login to your TurboTax Account 
2. Click on the "Search" on the top right and type “1099-R” 
3. Click on “Jump to 1099-R”
4. Answer "Yes" to "Did you get a 1099-R in 2023?"
5. Select "I'll type it in myself"
6. Box 1 enter total distribution (contribution plus earning)
7. Box 2a enter the earnings
8. Box 7 enter J and P
9. Click "Continue"
10. On the "Which year on Form 1099-R" screen say that this is a 2024 Form 1099-R.
11. Click "Continue" after all 1099-R are entered and answer all the questions.
12. Continue until "Did you use your IRA to pay for any of these expenses?" screen and enter the amount of earnings under "Corrective distributions made before the due date of the return".

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2022" but you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2023.

Question 2)

Please see What is the TurboTax 100% Accurate Calculation Guarantee? 

[katmclernon]

@DanaB27

i replied in email - but don't think it went through - so here it is again. 

@DanaB27

Token – 1219926

On number 2 – because of Turbotax indicating I needed to withdrawl my roth contributions and any earnings I did. This created a tax liability for me – but I don’t know how to process it under the recommendation below since I did as Turbotax indicated and therefore paid additional taxes. Kindly advise.

Kat

[dmertz]

Except in certain cases where you received a distribution from an inherited IRA.  TurboTax determines the MAGI for the purpose of a Roth IRA contribution correctly as long as you enter the Form 1099-R for the conversion correctly.  Even in the case where a distribution from an inherited IRA is involved, TurboTax never calculates a MAGI that is higher than the correct amount.

Be aware that if you did an In-plan Roth Rollover, taxably moving fund from the traditional account in an employer plan like a 401(k) to the designated Roth account in that same plan, this is not a Roth conversion that is excludible from the MAGI for the purpose of a Roth IRA contribution.

Even if the return of contribution was ultimately not to correct an excess contribution, the return of contribution was still a permissible distribution.  The only part of the distribution that is taxable is the earnings attributable to the amount being returned, an you, not TurboTax, is responsible for ordinary income tax.  TurboTax would only be responsible for interest and penalties due to a calculation error made by TurboTax, and there is no calculation error that resulted in you paying any interest or penalty.

[MayaD]

Make sure you have answered the questions correctly after reporting the 1099-R form. 

Check AndreaG  detailed response on how To report the Traditional IRA distribution and the conversion contribution

[DanaB27]

Thank you I reviewed your token. You did not enter the conversions correctly. Right now they show as distributions and not as conversions. Since they show a distribution, they were included in your MAGI. TurboTax is working correctly. 

Please review the steps to enter the conversion in TurboTax:

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 information from your 1099-R
8. Answer questions until you get to “What Did You Do With The Money” and choose “I moved it to another retirement account”
9. 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"

To confirm, did you already request the withdrawal of excess contribution plus earnings? If yes, then the earnings will have to be entered on your 2023 tax return. 

@katmclernon 

[katmclernon]

This is not correct as per IRS form p590a. That form clearly states my conversion from a traditional IRA to a Roth IRA was not to be included in my AGI for purposes of contribution to a Roth. I called (at my expense) a senior tax account who researched this and confirmed what I have stated. I would attached the document, but I don't see a way to do that. 

So - Turbo tax had me back out my contributions of $15000 (2 people) - which caused me to have to pay taxes on the earnings (roughly $2000). These earnings would have not been taxible had the money stayed in the Roth like it was supposed too. In other words - a turbotax error is why I'm paying an additional ~$500 in taxes. 

Kindly respond. 

[katmclernon]

How you describe is exactly how I filled out the form - only all went to the Roth IRA - so it wasn't a combo. I absolutely selected rolled it over into a Roth. 

[DanaB27]

Yes, any income resulting from the conversion of an IRA (other than a Roth IRA) to a Roth IRA will be excluded in calculating the MAGI for Roth IRA Purposes (Pub 590-A).  I never said anything else. But you need to tell TurboTax that you made a conversion after entering Form 1099-R for it work correctly.

A mentioned before, when I tested it, TurboTax is correctly excluding conversion for the MAGI for Roth IRA Contribution Purposes.

When I reviewed the token you sent, you had selected "did something else with it" (see pictures below) and not a conversion to Roth IRA. Therefore, TurboTax correctly included the amount in your MAGI. 

When I selected the right steps, as mentioned in my previous reply, in the token return to show a conversion to Roth IRA, TurboTax correctly excluded the the income from the conversion for the MAGI and showed no longer the message for an excess Roth IRA contribution.

To confirm, you are using TurboTax Desktop? 

@katmclernon 

[katmclernon]

this does clarify... however, I want to share that the title is very confusing... it forces you to choose "I did a combination of... " when there was no combination... 100% was rolled over into an IRA, so it never occurred to me to choose the option that said I did more than one thing with the money... And it didn't appear in the pop up documentation that I found... cost me over $500.00 in taxes I would not have had to pay otherwise with no recourse. 

[Evi1anne1]

2024 Desktop not properly calculating MAGI for Roth Conversions

I have the same issue with TTD

It is not properly calculating MAGI and is saying that I have excess contributions in TTD.  It works fine in TTO.  I have 5 separate 1099-R Roth Conversions.  I found the Roth worksheet. . . it is only deducting 3 of them and indicating that I have an excess contribution. I could reduce the amount and leave my Roth as is but there is a glitch and if I didn’t know that it was wrong, I  might have done the same as the original poster.

Saved, exited and restarted TTD and not it is correctly calculating the MAGI

[DanaB27]

I cannot recreate the issue. It would be helpful to have a TurboTax ".tax2024" file that is experiencing this issue. You can send us a “diagnostic” file that has your “numbers” but not your personal information. If you would like to do this, here are the instructions for TurboTax Download: 

1. On your menu bar at the very top, click "Online"
2. Select "Send Tax File to Agent"  
3. Click "Send"
4. The pop-up will have a token number
5. Reply to this thread with your Token number and add @DanaB27 . This will allow us to open a copy of your return without seeing any personal information.  

We will then be able to see exactly what you are seeing and we can determine what exactly is going on in your return and provide you with a resolution.

@anne-v-carroll 

[dmertz]

A difference in the actual calculations seems unlikely.  As far as I know, the same calculation engine is used in all versions of TurboTax and any variation in behavior is likely the result of differences in user entries.

@Evi1anne1 , are some of these In-plan Roth Rollovers (IRRs) in a 401(k), 403(b), 457(b) or the federal TSP?  The taxable amount of IRRs is not permitted to be subtracted from MAGI for the purpose of determining the amount one is eligible to contribute to a Roth IRA.  Only taxable movement of funds to a Roth IRA are to be subtracted from AGI in the calculation of this MAGI.  The taxable movement of funds to a designated Roth account in an employer plan do not get subtracted.

[Evi1anne1]

Your token number is: [phone number removed]-50058039 @DanaB27

The warning is not coming up about excess funds but the Roth IRA sheet is still incorrect, only deducting 3 1099-R.  

There are 2 1099-Rs not registering one was InPlan conversion for 401K (coded G) and the other was from brokerage (coded 7) you can see the calculation of excess contributions on this form  

First part of token is not a phone number and does not include a dash but it keeps removing it

11189-10810 

[Evi1anne1]

@dmertz That is an interesting point.  Do you have any reference as to why they would not allow In Plan Conversions or Roll Overs?  I did go back through each 1099-R and it did deducted the one code 7 but not the one coded G.  Something to keep in mind for the future

Worksheet 2-1. Modified Adjusted Gross Income for Roth IRA Purposes in IRS Publication 590-A

#2 states: 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)

Technically the In Plan Conversion/Rollover is not an IRA but it is essentially the same principle going from Traditional to Roth, paying taxes and you don't receive any income so it really makes no logical sense to exclude those but we are talking about the government.