MAGI calculation for ROTH Contribution

[BillM223]

@dmertz You are a fine archaeologist!

[shmc]

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

[BillM223]

@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).

[shmc]

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

[BillM223]

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.

[dmertz]

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.

[shmc]

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.

[dmertz]

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.

[shmc]

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

[dmertz]

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.

[dmertz]

@BillM223 , just tagging you again to make sure that you saw that this same bug appears in the calculation of MAGI for the purpose of deducting a traditional IRA contribution.  (I've seen cases where TurboTax developers failed to recognize and correct related bugs unless explicitly called out.)

[dmertz]

With the discovery of the MAGI for the purpose of a traditional IRA deduction having the same problem, my guess is that there is a bug in the calculation for the MAGI for the purpose of a TIRA deduction and then this badly calculated MAGI is modified to come up with the MAGI for the purpose of a Roth IRA contribution instead of doing an independent calculation of the MAGI for the purpose of a Roth IRA contribution.

[BillM223]

Thanks, @dmertz - adding to the list.

[kkmrhktax]

I tried to follow this thread. Married filing jointly. I stopped working on 1/3/2023 and received earned income from the end of 2022. In late 2023, I transferred money from my Rollover IRA to my Roth IRA.
Our AGI is over $228K. Based on Federal worksheet 2-1 (Modified Adjusted Gross Income for Roth IRA Purposes), form 1040  Line 11 AGI is reduced by the amount I transferred from my Rollover IRA to my Roth IRA. The resulting amount is well below the $198K threshold.
I should modify line 1 of the Turbo Tax Roth IRA Contribution Limit Worksheet to AGI minus the amount transferred from Rollover IRA to Roth IRA, correct?
Thank you for the response.

[dmertz]

@kkmrhktax , this thread has nothing to do with your circumstances if you have not received any distributions from an inherited IRA and involves an MAGI that is erroneously calculated too low, not too high.

If, when calculating your MAGI, your AGI is not being reduced by the taxable amount of your Roth conversion, you've likely entered the Roth conversion incorrectly.  When entering the Form 1099-R that reports the distribution from the rollover IRA, make sure that you have indicated that you moved the money to another retirement account and either have indicated that you converted to Roth (online TurboTax) or you did a combination of rolling over, converting and cashing out (CD/download version of TurboTax) and have indicated the amount converted to Roth.  Confirm that you have reported the Roth conversion correctly by reviewing Form 8606 Part II to see the taxable amount of the Roth conversion.