Roth Contribution Increases Tax Liability???
I am preparing our joint return for 2018 in TurboTax and just entered $6500 Roth contributions for both my wife and myself. I was astonished when each contribution increased our tax liability by $109. I cannot imagine what is causing this. Can you?
Perhaps I should mention that we underpaid our 2018 taxes by more than 10%. Could that be affecting the tax bill?
Thanks,
Michael
Permalink Submitted by Undocumented Newcomer on Tue, 2019-02-26 15:57
Never Mind – my AGI was higher than I thought and some of the contribution was an excess contribution causing a penalty.
Permalink Submitted by Alan - IRA critic on Tue, 2019-02-26 16:28
Sounds like you are in the MAGI phaseout range and around $900 of each contribution is excess. There are different ways of dealing with this, and if you request the return of the excess amount it will eliminate the excise tax, but any earnings returned will be taxable in 2018 and FURTHER REDUCE your allowed contribution. That also means you should not file until you knew the amount of earnings that will be returned. Do you have any idea how much your contributions have gained or lost while held in the Roth? Do you expect your MAGI to be lower in 2019 than 2018? In other words, this is not simply how to do your taxes for 2018, it also affects how you plan to eliminate the excess amount going forward.