401k contributions after retirement

Forum|Forum|3 years ago
March 12, 2023
3 replies
9 views

In the Federal Taxes Deductions & Credits section in TurboTax Deluxe I need guidance with the Retirement and Investments category and specifically with Traditional and Roth IRA contributions section. I'm ok with the first 4 responses requested in the software but I am confused with the fifth one: "Retirent Plan Coverage". I am totally retired and in addition to Social SecurityI also have a retirement benefits from my years in education. I continue to contribute to my traditional IRA every month (no contributions to Roth IRA's). The question in TurboTax wants me to answer is "Are you covered by a retirement plan at work?". To me the answer is that I was covered when I was working but I no longer work anywhere and as a result I think my answer here should be no. Any guidance would be greatly appreciated.

TurboTax Free Edition Online

Best answer by dmertz

You are missing the main point. You can't keep contributing to a IRA after you stop working. You need earned income from working W2 wages or a Net Profit from self employment income. You will have an excess contribution penalty. @dmertz

With no income reported in box 1 of a 2022 Form W-2 (minus any amount in box 11) and no net profit from self-employment in 2022, you are not eligible to make any IRA contribution for 2022. Any IRA contribution you have made for 2022 is an excess contribution subject to a 6% penalty every year that the excess contribution remains in your IRA.

MaryK4

Level 15

Your traditional IRA contributions may be tax-deductible. The deduction may be limited if you or your spouse is covered by a retirement plan at work and your income exceeds certain levels. The question is asking for this tax year.

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oarcauteAuthor

Level 2

Thanks for the response. I am tje lone participsnt on this issue (not married). The only retirement plan I had and was contributing to was from the school district while I was working. I retired from that employer several years ago. I continue to make monthly contributions after retirement with funds from my monthly Social Security payments. The Retirement plan from the school district is my only other source of monthly income. Don't know what the income level would be or where I could find that info.

Not sure what to make of the last sentence. Should it be: The question is asking for this year's levels? Thanks again.

Opus 17

Level 15

@oarcaute

It’s important that we all understand the precise terminologies to be used and what exactly you were doing. You mentioned a 401(k), an IRA, and a retirement plan from a school district.

401(k) plans and IRAs are completely different types of retirement accounts, they are controlled by different sections of the tax law, and have very different rules and procedures, even though they have a broadly similar purpose. Each other type of qualified workplace retirement plan is covered by a different section of the tax law. Some of them include 403B, 401(a), and 457.

You said “I continue to make monthly contributions after retirement with funds from my monthly Social Security payments”. It sounds like you are contributing to your workplace plan from a school district. If so, that is not a 401(k) or an IRA. Before we can understand the legality and the financial implications of what you have been doing, we need to understand exactly where you have been contributing your money, and exactly what kind of account it is. For example, for certain types of deferred compensation retirement plans, you would continue to receive a W-2, even after you’re retired. It also matters whether you have been making contributions by automatic deduction from your retirement pay or whether you have been sending checks out of pocket from your own funds.

Opus 17

Level 15

You can’t contribute to an IRA unless you have compensation from working. Compensation includes wages, self-employment income on schedule C, and a few other minor categories of income. But if you are completely retired and don’t work, you can’t contribute to an IRA or a Roth IRA.

VolvoGirl

Level 15

Yeah you might have a big problem if you've been contributing to your IRA since you retired. When did you retire? You may need to amend prior year returns. Or it shouldn't let you enter any contributions if you didn't have any earned income from a current job. You will have a penalty for excess contributions.

oarcauteAuthor

Level 2

I officially retired from any employment (part time or full time) at the end of August 2021.

VolvoGirl

Level 15

Ok then you could have contributed to your IRA for 2021 if you made enough on your W2. But not for 2022. Sorry. You need to take your 2022 & 2023 contributions out of the IRA.