If TurboTax is generating a penalty for this, it indicates that you had only $2,937 of eligible compensation to support the traditional IRA contribution. Eligible compensation is generally income reported in box 1 of your W-2 (minus any amount in box 11) or net income from self-employment. Net income from self-employment is your net profit from self-employment minus the deductible portion of your self-employment taxes. Also, any deductible contributions that you make to a self-employed retirement plan reduce the amount of compensation available to support the IRA contribution.
