@jbbandkathy
II have confirmed the behavior of Turbotax for both 2023 and 2022 (it was the same last year as this year.)
For purposes of IRA contributions, your W-2 box 1 wages are reduced by the "deductible portion of SE taxes." Since your SE taxes include both the wages and the housing allowance, your SE tax should be $5082, the deductible portion of SE tax is $2541, and your wages minus the deductible portion of SE tax are 16970 minus 2541 = $14429. That is the allowable IRA maximum contribution.
I don't know why your contribution is reduced further, one reason that would happen is if your husband had some clergy business expense adjustments on schedule SE that further reduced his net earnings.
The reason you are seeing this for the first time this year is probably because the IRA maximum contribution was increased and you we just under the limit before and are now just over the limit.
The calculation, to "reduce SE income by the deductible portion of SE tax", is correct in the majority of circumstances. It seems unequitable in the case of a clergy housing allowance, but I have not been able to track down any sources that show a different kind of calculation for clergy. If you want to use a different calculation that would allow a full $15,000 contribution, you will need to find an accountant to support your argument.
I think that in this case, you need to remove $630 as an excess contribution. You do this by contacting the Roth custodian and asking for a removal of excess. You can remove the $630 from either account or a combination of both. The custodian must also return any earnings that are attributable to that $630 of ineligible contribution (interest, dividends, etc.). This must be completed before April 15. The earnings are taxable on this year's (2023) tax return even though you won't get a 1099-R for those earnings until 2024. Use the procedure to create a substitute 1099-R. You will get a 1099-R next year and you will report it in your tax return, but the program will know to not make it taxable next year.
The earnings are subject to regular income tax but not a 10% penalty.
To create a Form 1099-R in your 2023 return please follow the steps below:
- Login to your TurboTax Account
- Click on the "Search" on the top right and type “1099-R”
- Click on “Jump to 1099-R”
- Answer "Yes" to "Did you get a 1099-R in 2023?"
- Select "I'll type it in myself"
- Box 1 enter total distribution (contribution plus earning)
- Box 2a enter the earnings
- Box 7 enter P and J
- Click "Continue"
- On the "Which year on Form 1099-R" screen say that this is a 2023 1099-R.
- Click "Continue" after all 1099-R are entered and answer all the questions.
