MAGI calculation for ROTH Contribution

[shmc]

Line 1 of the Roth IRA Contribution Limit Worksheet is incorrectly calculating MAGI... it appears to be subtracting inherited IRA distributions (in addition to IRA Roth conversions). Why ?

also affects the Traditional IRA deduction, inherited IRA distributions are being subtracted from the MAGI caclculation in error.

[dmertz]

Wow!  You are right!  Very observant!  My own tax return shows the same problem.

Perhaps @BillM223 can help in reporting this bug.

I'll do a bit of research to see how long the bug has been present in TurboTax, but I suspect it's been there for a LONG time since it's not something that one would readily notice.  Of course somebody who did not actually make an excess Roth IRA contribution would not care.

[shmc]

it's been there since at least 2021, an error in the taxpayer's favor since it lowers the MAGI more than it should.

[dmertz]

 Not as log ago as I expected.  This bug was introduced with an update to 2021 TurboTax and remains present in 2022 and 2023 TurboTax.  It was not present in 2021 TurboTax on 3/19/2022 when I filed but is present in the last update to 2021 TurboTax.

[dmertz]

The error is not exactly in the taxpayer's favor since, if TurboTax fails to recognize an actually excess contribution due to this bug, the excess-contribution penalties can accumulate without the taxpayer's knowledge.  At least the SECURE 2.0 Act has created a statute of limitations for the IRS to be able to assess excess-contribution penalties, but the IRS has not yet provided guidance on how that statute of limitations will be applied.

[BillM223]

@dmertz 

Thanks for the note. Any additional information you can provide here (or through other channels) would be appreciated.

[shmc]

The same is happening on Line 12 of the IRA Deduction Worksheet. I am missing something when it comes to how inherited IRA distributions are treated.

[BillM223]

@dmertz  it has been suggested to me that I get a sanitized return from you of a test case that acts the way you describe. Can you do that?

Of course, you don't need to do any of the sanitizing; the TurboTax sanitation process while creating a token works very well...sometimes too well.

Let me know if you can do this for us.

Online

• Log into your TurboTax Online tax return
• On the left, click on Tax Tools
• Under Tax Tools, click on Tools
• In Tools Center, click on Share my File with Agent
• TurboTax will give you a “token”, a 7-digit number
• Post the token number in this thread
• Be sure to add to that post “@” “billm223” (without the space in between) so that I will be notified

Desktop

• Open your return in the desktop product
• Look along the top and click on Online
• Click on Send Tax File to Agent
• TurboTax will give you a “token”, a 7-digit number
• Post the token number in this thread
• Be sure to add to that post “@” “billm223” (without the space in between) so that I will be notified

[dmertz]

In trying to create a stripped-down version of a tax return, so far I have not been able to reproduce the problem that is shown in my personal tax return by building a new tax return, likely due to some interdependency with something that should be unrelated.  My personal tax return has more in it than I want to include in even a sanitized submission, so it will take me some time to figure out the interdependency and make the submission.  I think it has something to do with other Forms 1099-R that are present because if I delete those the symptom disappears.  I'll make the submission when I have something suitable.

[dmertz]

OK, I got it.  Token 1190388.

In this test file, the MAGI shown on the Roth IRA Contribution Limit Worksheet should be $250,000, not $50,000.

Recreating the problem required including a Form 1099-R for a Roth conversion from a traditional IRA and having basis in nondeductible traditional IRA contributions.  Got lucky in being able to initially see this symptom since my own personal tax return includes the necessary elements.

[dmertz]

@BillM223 , tagging you just to make sure.

[BillM223]

@dmertz 

Thanks for the token. 

[shmc]

@BillM223 I also uploaded a version of my file with both a ROTH IRA contribution and a Traditional IRA contribution so you can see both MAGI's on the worksheets . token number 1190456

[BillM223]

Thanks @shmc  

[dmertz]

Not realizing the interdependencies, my previous testing to determine when this bug got introduced was incomplete.  It now appears to me that it was introduced in 2020 TurboTax.