ROTH Contribution Limits Error 2023

[Rhineg]

As of Feb 5th, at least TurboTax Deluxe has an error in handling ROTH Contributions and is evaluating the contribution against earned income when it should be compared to modified AGI, since Roth contributions are using after tax money. Then TurboTax Deluxe sends you to a penalty page which is incorrect unless your contribution exceeds the MAGI limits NOT earned income limits.

[Bsch4477 · Accepted solution]

The Roth IRA contribution limit for 2023 is $6,500 for those under 50, and $7,500 for those 50 and older. 
You can only contribute the lesser of amount or your earned income. The MAGI determines your maximum income that allows you to contribute any amount. 

[Rhineg]

Earned income limits only apply to IRA contributions from pre-tax income, since those contributions are offset for taxing purposes. ROTH contributions are made from after-tax funds, so they are NOT limited by earned income but are compared to https://www.irs.gov/retirement-plans/amount-of-roth-ira-contributions-that-you-can-make-for-2023 for limits.

An error report has been registered with TurboTax level 2.

[Bsch4477]

To contribute to a Roth IRA, single tax filers must have a modified adjusted gross income (MAGI) of less than $153,000 in 2023.

The above establishes whether or not you can contribute at all. 

The Roth IRA contribution limit for 2023 is $6,500 for those under 50, and $7,500 for those 50 and older.

Above is the contribution limit if your MAGI allows you to contribute. 

[dmertz]

"ROTH contributions are made from after-tax funds, so they are NOT limited by earned income"

Roth IRA contributions are indeed limited to earned income.

[dvhayes]

What do you do/How do you get passed the penalty that is associated with this Turbo Tax error ?  

I suspect the automated processing on the IRS side will proceed with the erroneous penalty.  

I'm not sure what level 2 error is but I have also shown a support agent.  

[dmertz]

There is no TurboTax error with regard to how TurboTax determines eligibility to make a Roth IRA contribution.  TurboTax preparing Form 5329 Part IV means that the individual actually did make an excess contribution or something was entered incorrectly into TurboTax.

[DABnyc]

As of March 26th, using Premier, not only is MAGI still not calculated properly (TurboTax simply uses AGI) but the phaseout in Contribution Limits is also incorrect — when cross-referencing online tables and online calculators for 2023. For example, the 2023 ROTH IRA contribution limit for a MAGI of $150,000 is $1,500 (verified with Schwab et al). But TurboTax tells me that I'm limited to $200 with a MAGI (self-calculated) of $148,000. And then hits me with warnings and threats of penalties if I wish to contribute $350.

For weeks I've been getting emails from TurboTax, on and off, thanking me for my patience while they work "tirelessly" to resolve this error. The last email came on March 8th; it's now less than a month until the April 15th filing deadline. What to do? Let the TurboTax wag the filing Doug, and just contribute $200 to my 2023 Roth, instead of $350? insane!

For reference, the subject of the latest email from TurboTax:

We’re still working on Error in calculation of Roth IRA MAGI