Below are solutions to frequently asked questions about entering Roth IRA contributions in the Individual module of Lacerte. Since IRAs are calculated separately for the taxpayer and spouse, make sure to use the appropriate column for your entries.
Calculations and limitations addressed in this article may be impacted by inflation adjustments for the year. To see the IRS annual inflation adjustments for tax year 2021 and 2022 see here.
Follow these steps to enter Roth IRA contributions:
- Go to Screen 24, Adjustments to Income.
- Scroll down to the Roth IRA section.
- Enter the Roth IRA contributions (1 = maximum) field.
- Entering a 1 will calculate the maximum contribution according to the Roth IRA Contribution Worksheet contained in the Instructions for Form 8606.
- If the client made Roth IRA contributions and later recharacterized part of the contribution, enter the total amount contributed, including the recharacterization, in this field.
- Enter any Recharacterizations.
- Enter the Contributions made (letter use only) field.
- Scroll down to the Explanation of IRA Contributions Recharacterized section.
- Enter any necessary explanations in Taxpayer (Ctrl+E) and Spouse (Ctrl+E) fields.
- This is only necessary if you entered amounts in Recharacterizations from step 4.
Lacerte will calculate the difference between the contributions made and the contributions allowed. Then, the program will add a paragraph to the client letter informing your client to withdraw the excess contributions before the due date of the return to avoid a penalty. If the return is on extension, the program will assume that the IRA was funded by the original due date of the return and won't print a paragraph in the client letter.
Follow these steps to enter the starting basis for a Roth IRA:
- Go to Screen 24, Adjustments to Income.
- Scroll down to the Roth IRA section.
- Locate the Form 8606 (Part III) subsection.
- This subsection is related to Form 8606, lines 19-25.
- Enter the Basis in Roth IRA Contributions as of 12/31/2022.
- The program prints a Roth IRA Basis Schedule with the Worksheets.
- If the clients had a previous Roth IRA conversion, enter the appropriate amounts in Basis in Roth IRA Conversions as of 12/31/2022.
- The program prints a Roth IRA Basis Schedule with the Worksheets.
If the client received a Roth IRA distribution in the current year, the basis amount entered prints on Form 8606, page 2, line 22 (line 24 for conversions). If the taxpayer didn't receive a Roth IRA distribution in the current year, page 2 won't generate. Instead, the program will retain the basis and proforma it to next year, increasing it by any additional Roth IRA contributions or conversions made in the current year.
