With regard to these calculations, nothing has changed in more than 15 years (and has probably never changed).
"So how they arrive at 6505 as the earned amount, resulting in excess contribution of 495?"
I explained that. $7,000 of net profit minus the $495 deductible portion of self-employment taxes equals $6,505 of net earnings. The deductible portion of self-employment taxes is calculated on Schedule SE as:
$7,000 * 0.9235 * 0.153 / 2 = $495 after rounding.
"Also, if 7k is the limit for a Roth contribution for 2024, when you made 7k exactly that year, how would anyone know to contribute 495 less before filing taxes?"
One can either make the entry into tax return software like TurboTax, then let the software do the calculations and tell you if the contribution is too much, or one can develop an understanding of the tax code and do their own calculations.
The amount distributed return of contribution does not have to be derived from the same stocks that were purchased with the excess contribution. The attributable earnings required to be distributed with the returned contribution are calculated over the entire account, not over any particular investment in the account.
Skipping around in TurboTax can indeed cause you to bypass certain necessary entries. Many omissions are caught in TurboTax's final checks of your tax return, but some are not. If you fail to enter a Roth IRA contribution simply because it doesn't appear as a deduction on your filed tax return, TurboTax will be unable to do the calculation to see if any of your contribution is an excess contribution.
Level 15 means that I've made many replies in these forums, over 15,000 to date. I've been a TurboTax user for more than 30 years. The majority of these replies have been related to retirement contributions and distribution or have been related to self-employment.
