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.
Hi Ernie,
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.
Now it's 2022, i opened a Roth IRA at same brokerage where my IRAs are, and transferred over/Rolled over some securities, which i expect to pay taxes on since it's a preTax IRA distribution to Roth.
Problem is TT is complaining i've excessive contribution to Roth IRA since i showed No earned Income, i took early retirement last year, cashed out some IRA as well as converting Some to ROTH IRA, but TT is NOT recognizing the conversion/Rollover to Roth, it thinks it's a contribution to Roth IRA and Not a Rollover and capped contribution at $7K.
Is this a TT software bug?
From google : Is this wrong Info ?
Yes, you can convert unlimited amounts from traditional retirement accounts to a Roth IRA (back-door Roth contribution).
However, if you have a 1099-R with a Code 7 in Box 7, this is a two-step process in TurboTax to report correctly. A direct rollover would have Code G in Box 7.
Click this link for the steps.
Unfortunately, the prescribed steps DO NOT WORK in my current TT Premier 2022 edition.
Info was inputted correctly under "Wages & Income"
But in "Deductions & Credits", It incorrectly flagged with "You Have an Excess Roth Contribution"
It complained about i don't have enough earned income(Your contribution must be equal to or less than earned income) .... Except it's a rollover from an IRA to ROTH IRA, and i retired beginning 2022.
It's an obvious bug, form 1099R had all the correct boxes ticked. TT is turning into a real buggy annoying software.
No, Turbo Tax is right. Only enter the 1099R. Do not enter it under deductions, it is not a new contribution.