Lacerte not allowing a backdoor Roth IRA

[danvirden]

When I try to enter a client's IRA contribution, for someone who is over the income threshold for a person who is a member of a retirement plan at work, Lacerte says the contribution will be Excess Contributions and says it should be withdrawn by April 15th. It doesn't allow the IRA to be a nondeductible IRA. Is there a way around this?

[qbteachmt]

How much are they trying to contribute and how old are they? Details help.

[sjrcpa]

Assuming the nondeductible contribution is the proper amount, something must be wrong with your input.

[itonewbie]

The reason is that you have made your input on Screen 24, which is for direct contribution to Roth, for which your client does not qualify.

Instead, you should make your input on Screen 13.1.  After recording the IRA distribution, you'd scroll down to the section for Form 8606 and enter the following:

• Value of all traditional/SEP/SIMPLE IRAs at 12/31/20 (plus outstanding rollovers) (-1=none); and
• Under Conversion to Roth IRA, Traditional/SEP/SIMPLE IRA distributions converted to Roth IRA

[danvirden]

They are trying to contribute $6,000 each to a traditional IRA and their income is over $300,000. she is a member of a retirement plan at work. They are is their thirties. When the same information is entered into the 2019 program, the 8606 shows the non deductible amount. This year's program says on the letter that these are excess contribution and need to be withdrawn by 4/15/2021. I had to overide the nondeductible amount to have the letter print correctly.

[rbynaker]

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@danvirden wrote:

the 8606 shows the non deductible amount.

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Do you mean "each 8606 shows the non deductible amount"?  Taxpayer and spouse will have separate forms.

[itonewbie]

Do they have only one traditional IRA each and did they have a total distribution for the conversion?

[Thongsamut]

so do you enter $6,000 in both places and on 1040 4a and 4b should show $6,000?

[qbteachmt]

"so do you enter $6,000 in both places"

Both places? Once you enter the data, confirm it looks right by examining Form 8606, as well as the 1040. A Backdoor Roth is implied to be a nondeductible contribution to a Trad IRA immediately converted to Roth. The reason it would not be taxable is because the nondeducted contribution is basis (already taxed) and immediately moving it as conversion would avoid having any earnings on that amount. The reason it would be taxable, is that there is other non-Basis money in the similar accounts (as you see on the Form 8606, where you enter FMV) and that means any conversion (backdoor or not) will be prorated for tax purposes.

[NWT_Edgar]

I just dealt with this too... you have to make the entries in screen 13.1 as mentioned by original responder but ALSO have to enter non-deductible contribution on the "Adjustments to Income" screen.