Can I deduct $6500 contribution to traditional IRA?

[axelmolly]

Married filing jointly, one retired (started receiving pension payment in Dec. 2016), one working w/ 401K retirement plan. Income under $186,000 and both under 70 yrs.  Terminated Nov. 2016  and received 1 year severance, 10 months reported on 2017 W-2 and box 12a shows  $288. w\ letter D (deferred payment to 401K) and Ret. Plan is checked. Since $288 contribution to 401K was from income earned in 2016 but paid in 2017.  My understanding is that no more deductions were to be made to 401K plan after termination date in Nov. 2016, but due to error of my employer, pay from 2016 was made in 2017 and contribution made to my 401K.  Turbo Tax is showing our income is to high to deduct contribution to Traditional IRA, I believe it is because Retirement Plan is checked on 2017 W-2 and thus lower income limits with both under Retirement Plans.

[Phillip1 · Accepted solution]

You are correct.

The Retirement Plan on the W-2 is the indicator the IRS requires TurboTax to use in order to calculate the Traditional IRA contribution. If the box is checked on both W-2's the lower limit is, unfortunately, applied to both taxpayers.

[axelmolly]

Since the deduction and contribution was for deferred payment to my 401K and was from income earned in previous year, all caused by error of employer.  Given these facts,   should the retirement plan box on W-2 be checked off?  How do I have corrected if this is an error? Does receiving severance pay warrant retirement plan box being checked on W-2? As termination date was end of 2016.