I contributed $6000 to each of mine and my spouse's roth IRA. MAGI is $196,933, yet the software is saying we are only allowed to contribute $5450. Isn't the cap $198k?

[kaiotes123]

you cant do the full 6k, it's a prorated amount

https://www.irs.gov/retirement-plans/plan-participant-employee/amount-of-roth-ira-contributions-that...

married filing jointly or qualifying widow(er)	< $196,000	up to the limit
> $196,000 but < $206,000	a reduced amount
> $206,000	zero

[DanaB27 · Accepted solution]

As kaiotes123 posted the limit to be able to contribute the full amount to the Roth IRA is under $196,000.

Excess contributions are taxed at 6% per year for each year the excess amounts remain in the IRA. To avoid the 6% tax on excess contributions, you must withdraw:

• the excess contributions from your IRA by the due date of your individual income tax return (including extensions); and
• any income earned on the excess contribution.

You will have to tell your bank that you want to withdraw your your excess contribution and earnings. You might have to withdraw a little more than $550 for each since the earnings will have to be reported on your 2020 tax return which will increase you MAGI more.

Or you can recharacterize/switch the $550 to a traditional IRA contribution and select to make them nondeductible on your 2020 tax return. You need to tell your bank that you want to recharacterize your your $550 Roth contribution to a traditional IRA contribution. Then you can convert the amount later to a Roth IRA . This is called backdoor Roth.

If you like more information on these options then please comment here.

[techmsgt1]

I earned less than $100, my spouse earned $17,000 She contributed to my Roth, so where in TurboTax do you enter the amount my spouse contributed to my Roth account?

[DaveF1006]

Assuming you are filing Married Filing Jointly, you may contribute to a Roth based on your combined income. If you are filing separately, then you do not have any earned income to contribute a Roth and the contribution would need to be withdrawn by April 18 to avoid a penalty.

To report the contribution, you will report it as if you you made the contribution yourself.  Go to federal>deductions and credits>retirement and investments>traditional and Roth Contributions. As you proceed through this section and if married filing jointly, here will be a section for you to enter your contribution (includes a contribution made on your behalf) to the Roth and another section where your wife would report her contribution to her Roth, assuming she made one. 

[techmsgt1]

The problem is that when I do that, put in $7000 contribution as if it were from me instead of from my spouse, this is what TurboTax says: 

You must have at least as much earned income as the amount of your IRA contribution.

Example: You contributed $4,000 to your IRA. Your earned income is $3,500. You are allowed to contribute only $3,500 to your IRA, and the remaining $500 becomes an excess contribution.

This "earned income" isn't what the IRS says for a Roth; they say it is based on MAGI, Modified Adjusted Gross Income.  Her gross income from piano teaching is $17,000 but her net income is around $8000. My pension does not count toward contributions so she, based on MAGI of $17,000 minus the MAGI adjustments, was able to contributed $7,000 each Roth.  But Turbotax says I can't contribute more than our combined income which, minus my pension, was around $7,000. If this is correct, how do I get TurboTax to not say I have to take a distribution before I file our taxes?

[AmyC]

The key words are taxable compensation. Expenses reduce the taxable income. 

For 2022, the total contributions you make each year to all of your traditional IRAs  and Roth IRAs can't be more than:

• $6,000 ($7,000 if you're age 50 or older), or
• If less, your taxable compensation for the year

If the taxable income is below the limits, you will need to withdraw the excess plus earnings before filing your return.

See 

• Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs) which states: the amount you can contribute may be less than that depending on your income, filing status, and if you contribute to another IRA. See How Much Can Be Contributed? and Table 2-1 in chapter 2.
• MAGI worksheet for ROTH

@techmsgt1 

[techmsgt1]

I still haven't had explained to me if the Roth contribution is based on net income, MAGI income or gross income.  Ex. Gross income $17,000 (my pension doesn't count), AGI is taking our Gross income, subtracting 1/2 self employment tax, minus SEP contribution for a AGI of $16,000.  The MAGI takes the $16,000 and adds (I think) the working spouse's social security payments, SEP contribution and 1/2 self employment tax.  So is the Roth based on gross income, net income, AGI, or MAGI? Thank you.

[AmyC]

If your MFJ income is below $208,000, line 11 income becomes the starting point for your MAGI for ROTH. If you don't have any of the other items listed below, it will be line 11 AGI which after expenses for your wife's piano teaching, was less than the two ROTH IRAs. If the SEP contribution has not been made, that could adjust the income and might be easier to not make a contribution vs withdrawing the excess on ROTH.

Here again -with the worksheet this time!

• See How Much Can Be Contributed? 

@techmsgt1 

• 

[techmsgt1]

Sorry to bother you all but here's the problem.  Turbotax says, and I quote: 

Earned income does not include:
- Rental property income
- Investment income, such as interest income (reported on Form 1099-INT)
and dividend income (reported on Form 1099-DIV)
- Pension or annuity income
- Deferred compensation
- Income from a partnership for which you don't provide services
- Certain amounts that are excluded from your income, such as foreign earned income 

So it seems like line 11 is not the AGI for the purpose of "earned income" that I use for ROTH contributions. Is that right? My pension is over $100,000 so if I subtract that, the AGI is much,much smaller.  Ex. Pension $120,000 and Spouse income $17,000. The real AGI is  around $7,000 says TurboTax based on her net self employment income. so Roth contribution can only be $7,000 for her and she can't contribute anything to mine.  SO I have to take out $7,000 I contributed to my Roth in 2022.  Have I got it understood correctly?

[DaveF1006]

Yes, you are correct. You can only contribute up to the amount of your combined earned income for the year, which is $7000.  In this case, you will need to withdraw your Roth contribution to avoid the penalty.