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Level 1
posted Mar 20, 2024 8:18:35 PM

IRA and SEP Deductions

The IRS disallowed an IRA deduction for a contribution made by my unemployed wife to her traditional IRA.  The IRS stated that you can't claim an IRA deduction if you were an active participant in the Simplified Employee Pension (SEP) Plan.  Since our filing status is married filing jointly, is my wife considered an active participant in my SEP even though I am the sole proprietor of my business?  The deduction for my contribution to my SEP was allowed on the same tax return.  

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2 Best answers
Level 15
Mar 21, 2024 5:53:15 AM

Your participation in the SEP plan makes you covered by a workplace retirement plan.  You being covered by a workplace retirement plan means that your spouse's traditional IRA contribution for 2023 will be entirely nondeductible if your MAGI for the purpose exceeds $228,000.

Level 15
Mar 21, 2024 4:06:39 PM

TurboTax will catch an excess contribution, but will inform you of it only when you go through the IRA contribution section after having entered all items that go into the calculation of your MAGI for the purpose.  If you jump around in TurboTax rather than go thorough the sections in order, it's easy to miss the notification that you have entered an excess contribution.

6 Replies
Level 15
Mar 21, 2024 4:56:55 AM

"IRS stated"

 

Did you file already ?

@areja 

Level 15
Mar 21, 2024 5:53:15 AM

Your participation in the SEP plan makes you covered by a workplace retirement plan.  You being covered by a workplace retirement plan means that your spouse's traditional IRA contribution for 2023 will be entirely nondeductible if your MAGI for the purpose exceeds $228,000.

Level 1
Mar 21, 2024 1:21:46 PM

We have not filed this year.  That IRS notice was after we filed our 2020 return.  We were penalized and had to pay interest so I am trying to avoid that for the 2023 tax return in which we would again like to claim deductions for our IRA and SEP contributions.

Level 1
Mar 21, 2024 1:32:45 PM

Our MAGI must have exceeded the limit for the traditional IRA contribution to be deductible.  I am surprised the Turbotax software did not check for that and catch the error before we filed.   Thanks for this reply.  I will calculate the MAGI myself this year. 

Level 15
Mar 21, 2024 4:06:39 PM

TurboTax will catch an excess contribution, but will inform you of it only when you go through the IRA contribution section after having entered all items that go into the calculation of your MAGI for the purpose.  If you jump around in TurboTax rather than go thorough the sections in order, it's easy to miss the notification that you have entered an excess contribution.

Level 1
Mar 25, 2024 4:04:57 PM

Thank you!  This is good information to know since I do jump around.