Question

Date of IRA Contribution

Forum|Forum|5 years ago
May 4, 2021
1 reply
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I am over 70 and want to take advantage of the new regs that allow me to contribute to an IRA. I have only just learned about this new rule so my 2020 IRA contribution will be made in 2021. Why does making the contribution in May 2021 seem to negate the tax advantage? In fact, my taxes actually go up if I answer the TT request asking how much of the contribution was made in 2021.

macuser_22

Employee

More than likely you do not have at least as much W-2 or net self-employed income to even make a IRA contribution so it is treated as an excess contribution with penalty that repeats every year until the excess is removed.

The IRA contribution interview will warn you about excesses at the end of the interview - what does it say?

Is there a 5329 form with the penalty?

The maximum IRA contributions for 2020 is $6,000, or $7,000 if you’re age 50 or older by the end of the year; or your taxable compensation for the year which ever is less.

(Taxable compensation is generally wages that you worked for - W-2 or net self-employed income minus the deductible part of the SE tax, but can include commissions, certain alimony and separate maintenance, and nontaxable combat pay ).

See IRS Pub 590A "What is compensation" for details:
https://www.irs.gov/publications/p590a#en_US_2020_publink1000230355

See this IRS link for Traditional IRA deduction limits when covered by a retirement plan at work.

https://www.irs.gov/Retirement-Plans/IRA-Deduction-Limits

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**