Excess Contribution for 2021 traditional 401

[Ahubener]

Hi,

I'm 54 and contributed $7,000 to my Traditional IRA, a rollover from a previous job some years ago. I did take a distribution earlier in the year of $29,000. My Income and Adjustments and Total tax are greater than $7,000.

I am trying to figure out why I can only deduct $482 of the contribution and $6,518 is considered an excess contribution and being taxed.  Never mind that TT states the penalty tax will be assessed each year the money remains in the IRA.  What am I missing or doing wrong? 

This makes no sense to me. Thank you.  

[ThomasM125 · Accepted solution]

The most likely reason the IRA deduction would be denied is that you don't have sufficient earned income. You say you have income greater that $7,000 but that income would have to come from wages or self-employment. If it was from pensions, interest/dividends, investment sales, rental properties, etc... it would not qualify as earned income.

[Ahubener]

Hello and Thank You.   Is Social Security (SSDI) considered unearned income? I am guessing so. 

[KrisD15]

Social Security (SSDI) may not be used for calculating earned income for an IRA contribution limit.