Excess Roth contribution erroneously indicated - 2023 taxes

[dmertz]

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.

[DanaB27]

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 

[katmclernon]

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. 

[dmertz]

@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.

[Evi1anne1]

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

[DanaB27]

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 

[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 

[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 

[dmertz]

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.