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Does RothIRA contribution reduce Fed tax refund? I enter $5,500 for Roth IRA contribution, then my Fed tax refund decreased? Is that correct?

Forum|Forum|7 years ago
June 6, 2019
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TurboTax Deluxe Online

Best answer by dmertz

It will reduce your refund if it's a Roth IRA contribution that you are not eligible to make. Excess contributions are subject to a 6% excess-contribution penalty each year that they remain in the account. The penalty for an excess contribution will be calculated on Form 5329 Part IV and will appear on Form 1040 line 59.

You can avoid the excess-contribution penalty for 2017 by either obtaining a "return of contribution" (not a regular distribution) from the Roth IRA or, if you are eligible to make a traditional IRA contribution instead, by recharacterizing the contribution to a traditional IRA. Either transaction requires that you contact the Roth IRA custodian to perform the transaction by the due date of your tax return.

Before determining that you have an excess Roth IRA contribution, be sure to enter all items of income and all above-the-line deductions on your tax return. Your eligibility to make a Roth IRA contribution depends on your earnings and your modified AGI.

D

dmertzAnswer

Employee

It will reduce your refund if it's a Roth IRA contribution that you are not eligible to make. Excess contributions are subject to a 6% excess-contribution penalty each year that they remain in the account. The penalty for an excess contribution will be calculated on Form 5329 Part IV and will appear on Form 1040 line 59.

You can avoid the excess-contribution penalty for 2017 by either obtaining a "return of contribution" (not a regular distribution) from the Roth IRA or, if you are eligible to make a traditional IRA contribution instead, by recharacterizing the contribution to a traditional IRA. Either transaction requires that you contact the Roth IRA custodian to perform the transaction by the due date of your tax return.

Before determining that you have an excess Roth IRA contribution, be sure to enter all items of income and all above-the-line deductions on your tax return. Your eligibility to make a Roth IRA contribution depends on your earnings and your modified AGI.

A

Anonymous

Hi,

I entered that I contributed $5,500 to a ROTH IRA in 2019 and it is withing my contribution limit however it creates a tax due of $360. My understanding is that ROTH IRA is contributed with after tax dollars so there shouldn't be a tax credit nor cost.

This tax due appears even if I don't enter in any other information under income.

Is this an error on Turbo Tax's software code?

VolvoGirl

Employee

Sounds like it thinks you made an excess contribution. Do you have enough W2 income or self employment net profit to make a contribution? Have you entered your income yet?