Does non qualified deferred compensation distribution/payout count toward traditional IRA contribution eligibility?

Forum|Forum|2 years ago
April 8, 2024
1 reply
0 views

I get monthly checks from the company I retired from. They are called non-qualified benefits disbursement - maybe it is deferred compensation payout. They send me two 2023 W2's for it. I enter these and there is about $40k that shows up as earned income in Turbotax Deluxe desktop 2023. The Turbotax says I am ineligible for IRA contribution because my earned income is zero - even though there is a $40k value in the earned income line. It asks me my total traditional IRA amount (??) and then says I have to pay penalty - I cannot get past this step. Is this because it sees my non-qualified disbursement as non-applicable to earned income requirements for IRA contribution? I also have dividend, soc sec and 1099R income which I know does not count towards IRA eligibility earned income.

Best answer by dmertz

Income from a nonqualified deferred compensation plan will not support an IRA contribution. The IRS states that income on a W-2 that will support an IRA contribution is the amount in box 1 minus the amount in box 11.

dmertzAnswer

Employee

kvuralAuthor

Thank you, I agree.

bigmac2

The rationale and completion of forms (discussed above) is precisely the manner in which TurboTax handled my 2022 and 2023 filing. Any contribution to an IRA was limited by amount of earned income (other than that from non-qualified plan) on line 1 of 1040. However, for 2024, with identical payments and identical EOY W-2 from non-qualified plan TurboTax shows the amount from box 1of W-2 in line 1 of 1040, nothing in Schedule 1, Line 8t and therefore does not have the same limit on IRA contribution. Has there been a change in IRS interpretation and handling of deferred comp paid under non-qualified plan or mistake in Turbotax 2024? Note I have entered both Line 1 and Line 11 in W-2 input form.