Excess IRA Contributon tax is computed when sufficient W-2 earnings are present

Forum|Forum|2 years ago
February 8, 2024
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As I enter a Roth IRA contribution for 2023 in the amt of $7500, Turbotax computes an addition tax on Line 23 for *excess* contribution @ 6%. There is sufficient W-2 earnings present to support the contribution, and I don't see any double counting. E.g. the W-2 import did not included any IRA contribution.

Best answer by dmertz

Eligibility to make a Roth IRA contribution also depends on modified AGI for the purpose:

https://www.irs.gov/retirement-plans/amount-of-roth-ira-contributions-that-you-can-make-for-2023

VolvoGirl

Employee

Do you have more than 1 W2? Are you married? Be sure each W2 is entered under the right person.

gmc727Author

Yes, there are two W-2's. The husband made the IRA contribution, and he has sufficient W-2 wages to support. If I View the input W-2 forms, the taxpayer's W-2 (husband's) is not checked with an "X" Instead it is shaded in blue, without an X.

gmc727Author

I deleted the taxpayer's W-2 and re-entered it confirming that it is properly attributed to the taxpayer, not the spouse. Unfortunately this did not clear the issue. Turbotax still generates a Form 5329 and computes an excess contribution tax @ 6%.

dmertz

Employee

TurboTax does correctly determine the permissible amount of an IRA contribution when provided with correct information.

The amount shown on a W-2 that will support an IRA contribution is the amount in box 1 minus any amount in box 11.

For a spousal contribution, only the spouse with the lower compensation is eligible to use the other spouse's compensation to support their contribution. For example, if Spouse A has $5,000 of compensation and Spouse B has $4,000 of compensation, Spouse A's contribution is limited to $5,000 while Spouse B would be eligible to make a $7,500 contribution (provided Spouse A contributed no more than $1,500 to Spouse A's own IRA).

gmc727Author

This return seems to conform with what you're saying above and, therefore, should not have excess contribution tax applied. This is a retired couple -> Spouse A has W-2 wages of $8166 in Box 1 and zero in Box 11. Spouse B has W-2 wages of $967 in Box 1 and zero in Box 11. Spouse A made a $7500 Roth IRA contribution, which should be supported by earned wages of $8166. Spouse B made no IRA contribution.