Contributing to an IRA between Jan 1 2019 and April 15 2019: Does the contribution count if it's made after Dec 31, 2018? TurboTax seems to indicate "no".

[iraseigel4342653]

When I entered the amount of the contribution, my Federal Tax Due dropped. When I entered that same amount in the box for the contribution between Jan 1 and April 15, my Federal Tax Due went back up to the earlier amount. Is this a problem with TurboTax?

[DanielV01]

Double-check that you did not select the ROTH-IRA box instead of the Traditional IRA box for the Jan-April contribution.

[iraseigel4342653]

Hello Daniel. Thank you for your answer. I've tried to post screenshots here, but I don't see a way. Please look at the appropriate screen in TurboTax Deluxe under Deductions & Credits - Tell Us How Much You Contributed. I do not see any box that gives you a choice between ROTH and Traditional. In fact, the questions asked are specifically for Traditional IRAs.  If you can accept screenshots, please tell me how. Thanks.

[dmertz]

The effect you are seeing is because the contribution is nondeductible.  Because the contribution occurred after the end of 2018, this addition to your basis in nondeductible contributions cannot be applied in determining the taxable amount of distributions that occurred in 2018.  For a better understanding, see the calculations on Part I of Form 8606.

[iraseigel4342653]

Hello. Thanks for your answer.
I'm not sure you understand my question, or what TurboTax is telling me. Let me explain step-by-step:

1. My Tax Due box has a big number in it.  I'm now ready to work on the IRA deduction, so I go to that screen - "Tell Us How Much You Contributed". The screen asks for TRADITIONAL IRA contributions, and I enter $6500. When I click Continue and go to the next screen, I can see the Tax Due number dropping by over $1000.

2. I click the Back button and return to the screen in which I entered the $6500. I now enter the same number, $6500, into the box that asks what part of the above amount was contributed up until April 15, 2019. When I click Continue and go to the next screen, I can watch the Tax Due number going back up to its original, bigger number.  This would seem to indicate that the program isn't recognizing that the contribution is valid towards my 2018 earning, which is counter to what the law allows.

Nothing I've said here or done indicated that I've had a "taxable amount of distributions that occurred in 2018", as your answer stated, so I believe that's irrelevant. The problem SEEMS to be that when I enter in a contribution, the program "gives me credit" for it, and when I say that the contribution occurred between Jan 1 and Apr 15, 2019, the program takes it away.  This appears to be a problem with TurboTax.

Please note (again) that there is nothing on that screen that allows you to choose whether the contribution is for a Traditional or a Roth, which Daniel mentioned in his earlier answer. The screen ONLY deals with Traditional contributions.

[And just a side, but related, question: If the program knows from your W-2 info that you're covered in an employer's retirement plan, then why is the Tax Due box changing when you enter in an IRA contribution? The program should know and tell you that you're not eligible for an IRA deduction because you're covered by an employer's plan. Or am I misunderstanding something? But please don't concentrate on this part of my post; it's the earlier problem that really seems to be a TurboTax bug and is giving me 2 different Tax Due amounts over $1000 apart.]

[dmertz]

My answer gives the *only* way that the amount you enter as the amount contributed between January 1 and April 15 can affect your balance due.  What you are describing agrees exactly with what my answer describes if I assume that your assertion that you did not make any traditional IRA distributions or Roth conversions in 2018 is incorrect and that you actually have entered a code 1, 2 or 7 Form 1099-R that has the IRA/SEP/SIMPLE box marked.  The only purpose TurboTax has for asking the amount contributed between January 1 and April 1 is to be able to populate line 4 of Form 8606.  The only reason that the amount on line 4 of Form 8606 would have any effect on your balance due is if you made distributions or Roth conversions from a traditional IRA, reported on lines 7 or 8 of Form 8606, respectively.

TurboTax appears to be treating the contribution as nondeductible due to your modified AGI, filing status and participation in an employer-provided retirement plan for 2018.  When you enter the $6,500 traditional IRA contribution and do not indicate that it was contributed between January 1 and April 15, TurboTax is treating the nondeductible contribution as being applicable in the calculation of the taxable amount of the separate IRA distribution or Roth conversion that you've already entered.  When you go back and tell TurboTax that the $6,500 was contributed between January 1 and April 15, this basis is no longer applicable in the calculation of the taxable amount of the IRA distribution or Roth conversion, the taxable amount of the IRA distribution or Roth conversion goes back to what it was and the basis that is no longer being applied carries forward, increasing the amount on line 14 of Form 8606.

Examine Form 8606 to see the calculation.