What happens if Roth contribution is too high on TurboTax?
TurboTax will calculate your MAGI and determine whether you've made an excess contribution. If this happens, you'll be subject to a 6% tax penalty on the excess amount for every year that it stays in the account.
If you don't remove excess contributions and any investment earnings from those contributions by the tax filing deadline plus any extensions, you may have to pay a 6% penalty on those contributions every year until they are removed. Visit the IRS for more information on tax penalties for IRAs.
Roth IRA income limits
If you're a single filer or head of household: Your Modified Adjusted Gross Income (MAGI) must be less than $153,000 in 2023 ($161,000 in 2024). If you're a joint filer: Your MAGI must be less than $228,000 in 2023 ($230,000 in 2024).
The IRS requires the 1099-R for excess contributions to be created in the year the excess contribution is removed the from your traditional or Roth IRA. Box 7 of the 1099-R will report whether you removed a contribution that was deposited in the current or prior year for timely return of excess requests.
Contributions to a Roth IRA aren't deductible (and you don't report the contributions on your tax return), but qualified distributions or distributions that are a return of contributions aren't subject to tax.
Key Takeaways
If you over-contributed to your 401(k) plan—that is, you contributed more than the annual maximum set by the IRS—you should notify your employer or the plan administrator immediately. If you are age 50 or older, you can contribute an extra $7,500 in both 2023 and 2024.
6. Are excess contributions subject to a penalty? Yes. In general, an excise tax of 6% for each tax year is imposed on the HSA owner for any excess individual and employer contributions made to their account that are not removed within the same tax year.
TurboTax will calculate your MAGI and determine whether you've made an excess contribution. If this happens, you'll be subject to a 6% tax penalty on the excess amount for every year that it stays in the account.
You have to report your traditional IRA contributions on your tax return in order to claim a tax deduction, and you should enter your Roth IRA contributions into TurboTax, because: You might qualify for the Saver's Credit. This will record your Roth IRA basis, which can be useful for future tax calculations.
- Login to your TurboTax Account.
- Click on the "Search" on the top right and type “1099-R”
- Click on “Jump to 1099-R”
- Answer "Yes" to "Did you get a 1099-R in 2021?"
- Select "I'll type it in myself"
- Box 1 enter total distribution (contribution plus earning)
- Box 2a enter the earnings.
How do I remove excess Roth IRA contributions?
Reporting an excess Roth IRA contribution generally involves the same process as reporting an excess contribution to a traditional IRA. As soon as you notice the excess contribution, you should contact your plan administrator. If you have already filed your tax return, file an amended tax return.
If your income is too high, you won't be able to contribute to a Roth IRA directly, but you do have an option to get around the Roth IRA income limit: a backdoor Roth IRA. This involves putting money in a traditional IRA and then converting the account to a Roth IRA.
A “backdoor” Roth IRA allows high earners to sidestep the Roth IRA's income limits by converting nondeductible traditional IRA contributions to a Roth IRA. That typically requires you to pay income taxes on funds being rolled into the Roth account that have not previously been taxed.
While Roth IRAs don't lower your taxes when you contribute, they allow your money to grow tax-free indefinitely. Eliminating the taxes from your earnings can make a significant difference in your investment balance over time.
The Roth IRA five-year rule says you cannot withdraw earnings tax-free until it's been at least five years since you first contributed to a Roth IRA account. This five-year rule applies to everyone who contributes to a Roth IRA, whether they're 59 ½ or 105 years old.
Shareholders who have a retirement account (such as a Traditional IRA, Roth IRA, Rollover IRA, SEP-IRA, or SIMPLE IRA): with distributions during the tax year will receive a Form 1099-R. with contributions for the tax year will receive a Form 5498.
More specifically, you cannot contribute to a Roth IRA if your income exceeds $161,000 for single filers or $240,000 for joint filers. The IRS also steadily reduces your Roth IRA contribution limits at incomes between $146,000 and $161,000 for single taxpayers and $230,000 and $240,000 for joint filers.
The maximum amount you can contribute to a Roth IRA for 2024 is $7,000 (up from $6,500 in 2023) if you're younger than age 50. If you're age 50 and older, you can add an extra $1,000 per year in "catch-up" contributions, bringing the total contribution to $8,000. The catch-up contribution was also $1000 in 2023.
Make sure you didn't accidentally re-enter the amount already listed (from box 12 of your W-2) as this will incorrectly double your total contribution amount. Continue through the HSA screens, making sure you answered all questions correctly.
If your employer didn't include your excess contributions in Box 1 of your W-2, you do not need a corrected W-2. You can correct the excess HSA contributions on your tax return. You do this by reporting the excess contributions as “other income” on Schedule 1 of your Form 1040.
Can excess HSA contributions be removed without penalty?
If you're paying attention, then it's possible to correct the mistake before the IRS even notices. Simply remove the excess amount from your account before Tax Day, and you will not incur a penalty. The next year your HSA administrator will send you Form 1099-SA, which shows your total distributions from your HSA.
By maxing out your contributions each year and paying taxes at your current tax rate, you're eliminating the possibility of paying an even higher rate when you begin making withdrawals. Just as you diversify your investments, this move diversifies your future tax exposure.
You can contribute no more than $6,500 ($7,500 if you're 50 or over) to all of your traditional and Roth IRAs. Any more than that is considered an excess contribution and will be taxed at 6% per year.
If you use tax software, such as TurboTax, you can avoid tedious calculations and let your computer calculate the deduction for you. TurboTax can help you determine whether your IRA contributions are deductible and will calculate exactly how much you can deduct.
Roth IRA withdrawal guidelines
Withdrawals must be taken after a five-year holding period.
