Excess Roth contribution erroneously indicated - 2023 taxes

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? 

@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

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.

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

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 

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. 

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. 

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 

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. 

2024 Desktop not properly calculating MAGI for Roth Conversions

I have the same issue with TTD

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 

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.

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 

@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.

Despite an IRR being similar to a Roth conversion, it is not a Roth conversion as the term "Roth conversion" is used in the tax code.  Section 408A(c)(3)(B)(i) defines MAGI as excluding amounts included in income under section 408A(d)(3) which refers to the movement of funds only to a Roth IRA.  The taxable rollover of funds to a designated Roth account, described in section 402(A)(c)(4), is not included in this definition.

So yes, your IRRs, indicated by the taxable amount in box 2a of the code-G Forms 1099-R, are not permitted to be subtracted when calculating MAGI for the purpose of determining the limit on Roth IRA contributions.  TurboTax is working correctly and is determining your excess Roth IRA contribution correctly.  All versions of TurboTax behave the same with regard to this.

Section 402(A) came about several years after section 408A.  Whether there was a conscious decision to not add IRRs to the definition of this MAGI or simply an oversight, the law applies as written.

I reviewed you token and TurboTax is working correctly. You entered 3 conversions. If this isn't correct review your Form 1099-R entries and follow-up questions.

Dmertz is correct, you had In-plan Roth Rollovers (IRRs) and these not permitted to be subtracted from your MAGI for the purpose of determining the amount you are eligible to contribute to a Roth IRA.

[Edited 2/11/2025 | 11:55am PST]

@Evi1anne1 

This is NOT the answer I was given last year when I escalated the issue. In fact that answer appears to be correct (just very hard to guess what Turbotax selections to ensure it is categorized correctly). 

What I was told is that my conversion to Roth (from a traditional IRA) did NOT impact how much I could contribute to my Roth. Once I found the correct setting, I was able to do this properly last year (unfortunately not before I had taken it back out and had to take the tax hit on all the income, but still in the end got it worked out). 

My concern here is this answer seems to be exactly the opposite of what TurboTax told me last year. Those notes should be here somewhere as it was all in this string. 

@katmclernon , the issue here is that In-plan Roth Rollovers (IRRs) were involved.  TurboTax correctly subtracted from AGI the taxable amount of Roth conversions made from traditional IRAs and correctly did not subtract the taxable amounts of IRRs.  (IRRs are not Roth conversions as the term is used in the tax code.)

@katmclernon , your circumstances did not involve IRRs, so you were not given any information about how IRRs affect MAGI for the purpose of determining the limit on Roth IRA contributions.  The answer that you were given last year does not disagree with anything said in this thread.

I know TTD was excluding 2 1099-Rs, only one was IRR.  Since the "excess" amount was only about $1K either one would have .  Fidelity's 1099-R did say it was a correction when I imported it to TTO.  The only thing I can think is that the "IRA" or the "amount not determined" box was not check but I am sure I would have checked the IRA button or it would have been caught in the follow up questions.  If there was not issue with the diagnostic, everything must have been entered correctly.  My question is what did you see in boxes 11 thru 16 on the Roth IRA sheet when you opened the diagnostic before you did anything else?   

After exiting, updating software and reopening the "excess" screen disappeared and showed no errors but the Roth Sheet still showed the excess.  Maybe the update fixed something?

After going through the individual 1099-Rs after downloading the diagnostic those blocks actually changed to 8,000 and didn't show any excess and excluding the Fidelity 1099-R.  I wish I would have taken a screen shot as I know what I was seeing.

It seems like the standard answer here  is Turbo Tax is always right.  I just want to know what the root cause of this is.  It seems like there is something about going through the questions again that actually triggered it to do properly

Yes, lines 11 - 16 on the Roth IRA sheet have entries, it shows an $8,000 contribution and TurboTax calculates that the Roth IRA contribution is limited to $6,930. The return has an excess contribution calculated on Form 5329.

Your return shows one IRR and 3 conversions. Only the conversions are subtracted from your MAGI for the purpose of determining the amount you are eligible to contribute to a Roth IRA. On the Roth IRA sheet the MAGI is correctly calculated deducting the 3 conversions from your AGI.

@Evi1anne1 

So there was an error in the file I sent because I had five (5) 1099-R conversions and it was properly excluding the one (1) IRR coded G but it was only including three (3) of the four (4) 1099-Rs coded 7.  I'm not sure what I did other than going through the questions on the 4th one that triggered it to include it properly in the Roth IRA sheet because there is not any exclusion now and it did not have issue when uploading everything to TTO @DanaB27 

You should review each Form 1099-R entry and verify that you selected conversion in the follow-up question for the ones that were converted.

1. Click on "Search" on the top right and type “1099-R” 
2. Click on “Jump to 1099-R”
3. On the "Review your 1099-R info" screen click "Edit"
4. Answer questions until you get to “Tell us if you moved the money through a rollover or conversion” and choose “I converted some or all of it to a Roth IRA”

@Evi1anne1 

It would seem that on the one code-7 Form 1099-R that was not being subtracted you probably did not indicate that it was converted to Roth.  The taxable amount would be the same if just treated as a distribution that was not rolled over or converted, but it would not be subtracted from your AGI when determining your MAGI.