I am a returning user of TurboTax (used it for many years but had a CPA do it for the last 15 or so) and am using the desktop version. As in past years, in 2020 I rolled over a portion of my traditional IRA to a Roth.
In the TurboTax interview screen "Rollover of 401(k) to Roth 401(k)" I checked the box:
"Yes, this money rolled over to a designated Roth 401(k) or 403(b) account."
I spoke with TT support and reviewed IRS instructions on this. While the rollover SHOULD count toward my taxable AGI, it SHOULD BE DEDUCTED when calculating the MAGI for purposes of determining the Roth contribution limit.
The federal program is NOT recognizing that direct rollover. As a result it is getting several things wrong.
1. It is telling me that my wife and I both have an excess contribution to our 2020 Roth.
2. It is charging me several hundred dollars for those excess contributions.
3. Initially, the state return DID recognize the direct rollover and at first posted an error statement that the federal and state info do not match. However- I no longer see that error- perhaps I checked something that eliminated that mismatch error ... but the federal program still says we have excess contributions and is both restricting what it says we can donate and charging us tax for the supposed excess contributions.
FYI- My case was referred up the chain but no one from TT has contacted me. Hoping you all could help.
Moving money from a traditional IRA to a Roth IRA is usually a taxable event because you are putting never taxed money (traditional IRA) into an after tax account (Roth). This is called a conversion, not a rollover.
The exception to this rule is if you have after tax money, or "basis", in the Traditional IRA. In that case, some or all of the conversion would not be taxable. A popular technique called a Backdoor Roth IRA utilizes this.
A Backdoor Roth IRA only works if well if nearly all the money in the Traditional IRA money is post-tax. The IRS does not allow you to cherry pick, so when you say you convert a "portion" of your Traditional IRA every year, a portion would be considered pre-tax even if the pre-tax money was segregated in another account.
TurboTax allows you to enter an after tax basis for a Traditional IRA.
- Type ira contributions in Search in the upper right
- Select Jump to ira contributions
- Select Traditional IRA even if you did not make an traditional contributions
- Keep going until you see Any Nondeductible Contributions to Your IRA?
- Type YES and enter the amount of after-tax money in the account. This should reduce your conversion amount.
Thanks for the reply- however my situation is not as you described. I was able to reach a specialist and we identified that there is a glitch in TT that was thought to have been resolved but for some reason still is incorrectly calculating my MAGI. It has been elevated to an investigation and hopefully they will get back to me with a solution later this week.