MAGI calculation for ROTH Contribution

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.

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

 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.

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.

@dmertz 

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

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.

@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

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.

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.

@BillM223 , tagging you just to make sure.

@dmertz 

Thanks for the token. 

@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

Thanks @shmc  

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.

@dmertz You are a fine archaeologist!

I agree,... I don't see it in 2018 or 2019.

@dmertz 

@shmc  

dmertz, you are correct about how this is not an advantage to the taxpayer. Based on what you said, I overrode the line one on the Worksheet on your test return, changing the 50,000 to 250,000.

Sure enough, the 6,500 Roth IRA contribution was declared to be in excess, which triggered form 5329 and a penalty of $390 on line 25, which carries back to line 8 on Schedule 2 (1040).

@BillM223 What's the next step in getting this corrected ?

I have to write up the issue (my thanks to you and @dmertz for creating the test cases), to be submitted to the team to reproduce the behavior and authorize a correction. Unfortunately, we in the Community have no input once we have done this, therefore, I cannot give you an estimate on when a correction, if any, will be available.

As long as no excess Roth IRA contribution was made when MAGI is determined correctly, this bug is of no consequence.  It's only of consequence if the incorrectly determined MAGI leads one to believe that there was no excess Roth IRA contribution when there actually was and as a result the individual does not know that they need to timely correct the excess to avoid a penalty.  Also, given the conditions required to trigger the bug, probably only a small percentage of TurboTax users would ever be exposed to the bug, so it might not end up all that high on the priority list.  I would suspect that TurboTax prioritizes such things based on how much they might have to pay out under their calculation guarantee.

true.

but the MAGI is also calculated incorrectly if someone has inherited IRA distributions AND is making a Traditional IRA contribution AND they fall within the income limits to allow for an IRA deduction on Schedule 1 . The incorrect lower MAGI would cause a larger than allowed IRA deduction.

Those are two different MAGIs with different calculations.  There is no subtraction of Roth conversions in the calculation of the MAGI for determining deductibility of a traditional IRA contribution.

I know.

I am saying both MAGI calculations are wrong. Turbotax is incorrectly subtracting inherited IRA distributions to arrive at the MAGI used for Roth Ira Contribution Limits and also the MAGI for the IRA Deduction Limit

Oh, you are right!  The income from the inherited IRA is not present on line 12 on TurboTax's IRA Deduction Worksheet.  So the bug is affecting both MAGI calculations.