IRA deduction

[244222]

I used Turbo Tax and filed early however the Program would not accept IRA's for Wife and I because we are over age 72. I thought I must have misread the information from my Brokerage House.  When you came out with the update this month and I attempted to file corrected return the program accepted the IRA and other things however as the Refiling part of Govt. forms not complete I could not refile yet. Now I go back into Tax Return and and the Turbo Program wants to reject the IRA's.   Am I incorrect in believing the law changed within the last two years to permit Traditional IRA filing if older than 72!

[ErnieS0]

For tax years beginning after 2019, the rule that you are not able to make contributions to your traditional IRA for the year in which you reach age 70½ and all later years has been repealed.

Do you have earned income?

It’s possible TurboTax is rejecting your IRA contribution for something other than age. Only compensation from working qualifies for income which can be used for an IRA deduction.

[244222]

Thanks, I am self employed an have earnings for 2020.

[macuser_22]

The IRA contribution section works fine.

Self-employed compensation is net-earned income minus the deductible part of the SE tax.

[244222]

Interesting, I will have to look closer at the items you mention, I know I had to repay most of the SS because of my earning being too much. Covid slowed down the gross earnings for 2020 considerably.

Thanks.

Adrian

[silasnic43]

My wife & I are both over 50, opened a $7000 IRA for 2020 tax year If I contribute to that IRA can my wife also open an IRA that would be deductible?

[PattiF]

Yes, your wife would be able to contribute to an IRA for 2021 as long as you had jointly earned income equal to or greater than $14,00.

@silasnic43

[tovaface]

The Live Support "tax expert" I spoke with yesterday told me IRA contribution amount is based on MAGI. Yet nowhere in TT could we find MAGI on my 2021 Home and Business Desktop version. This CPA "expert" did not seem to be at all familiar with TT software.  Why is there is no search bar in TT? The Topic List under tools was no help at all.  He told me that based on my AGI, I should contribute the maximum. When I told him I didn't think that was correct, he said I can call the brokerage which holds my IRA account and they could tell me. I finally found a number for Combined Earned Income in the Personal section under Retirements and Investments. Yet I could not tell on what that number was based. It didn't match any number from our Schedule Cs or any other form.  It was far less than the maximum amount this advisor said I could contribute.  Lastly, every time I reopen TT, it automatically updates and many of my number change, e.g. Adjustments, AGI, Taxable Income, and Combined Earned Income.  If my IRA contribution is based on the latter, how do I know it's correct if it changes with every update? I'd like to know how TT is calculating this number.

Thank you.

[macuser_22]

The only place that you will find it is on the "Roth IRA Contribution Worksheet" line 1, but it is easy to calculate yourself.

From IRS PUB 590A.

Worksheet 2-1. Modified Adjusted Gross Income for Roth IRA Purposes

Use this worksheet to figure your modified adjusted gross income for Roth IRA purposes.

1.	Enter your adjusted gross income from Form 1040, 1040-SR, or 1040-NR, line 11	1.	_____
2.	Enter any income resulting from the conversion of an IRA (other than a Roth IRA) to a Roth IRA (included on Form 1040, 1040-SR, or 1040-NR, line 4b) and a rollover from a qualified retirement plan to a Roth IRA (included on Form 1040, 1040-SR, or 1040-NR, line 5b)	2.	_____
3.	Subtract line 2 from line 1	3.	_____
4.	Enter any traditional IRA deduction from Schedule 1 (Form 1040), line 20	4.	_____
5.	Enter any student loan interest deduction from Schedule 1 (Form 1040), line 21	5.	_____
6.	Enter any foreign earned income exclusion and/or housing exclusion from Form 2555, line 45	6.	_____
7.	Enter any foreign housing deduction from Form 2555, line 50	7.	_____
8.	Enter any excludable qualified savings bond interest from Form 8815, line 14	8.	_____
9.	Enter any excluded employer-provided adoption benefits from Form 8839, line 28	9.	_____
10.	Add the amounts on lines 3 through 9	10.	_____
11.	Enter: $208,000 if married filing jointly or qualifying widow(er), $10,000 if married filing separately and you lived with your spouse at any time during the year, or $140,000 for all others	11.	_____
	Is the amount on line 10 more than the amount on line 11? If “Yes”, see the Note below. If “No”, the amount on line 10 is your modified adjusted gross income for Roth IRA purposes.
	Note. If the amount on line 10 is more than the amount on line 11 and you have other income or loss items, such as social security income or passive activity losses, that are subject to AGI-based phaseouts, you can refigure your AGI solely for the purpose of figuring your modified AGI for Roth IRA purposes. (If you receive social security benefits, use Worksheet 1 in Appendix B to refigure your AGI.) Then go to line 3 above in this Worksheet 2-1 to refigure your modified AGI. If you don’t have other income or loss items subject to AGI-based phaseouts, your modified adjusted gross income for Roth IRA purposes is the amount on line 10 above.

[tovaface]

macuser_22, Thank you for your reply. I read through Pub 590A and now realize that this TT "tax expert" was even more off base than I thought. MAGI is used to determine eligibility to contribute to a Roth. The actual amount is based on the lesser of taxable compensation or the limit of $14,000 (married, filing jointly, both over 50). So given that my MAGI is well below the eligibility limit, the taxable compensation number is what I need.

This I understand to be the sum of 1040 line 1 and line 8.  These numbers do not add up to the amount TT said I can contribute to our Roths. It really makes me wonder if there are glitches in TT software in other places.

[macuser_22]

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@tovaface wrote:

macuser_22, Thank you for your reply. I read through Pub 590A and now realize that this TT "tax expert" was even more off base than I thought. MAGI is used to determine eligibility to contribute to a Roth. The actual amount is based on the lesser of taxable compensation or the limit of $14,000 (married, filing jointly, both over 50). So given that my MAGI is well below the eligibility limit, the taxable compensation number is what I need.

This I understand to be the sum of 1040 line 1 and line 8.  These numbers do not add up to the amount TT said I can contribute to our Roths. It really makes me wonder if there are glitches in TT software in other places.

---

The most you can contribute to all of your traditional and Roth IRAs is the smaller of:

For 2019 and 2020, $6,000, or $7,000 if you’re age 50 or older by the end of the year; or your taxable compensation for the year.

(Taxable compensation is generally wages that you worked for - W-2 or net self-employed income minus the deducible part of the SE tax, but can include commissions, certain alimony and separate maintenance, and nontaxable combat pay ).

See IRS Pub 590A "What is compensation" for details:
https://www.irs.gov/publications/p590a#en_US_2020_publink1000230355

See this IRS article for Roth contribution limits:
https://www.irs.gov/retirement-plans/roth-iras

[tovaface]

@macuser_22 

Thank you again. I said $14,000 max as the combined limit for me and my spouse (which we aren't close to reaching). If I subtract the SE tax deduction from our taxable compensation, then the IRA contribution amount is that much lower than the Combined Earned Income number TT came up with when it told me how much we could contribute, which was already higher than the taxable compensation number I calculated. As I stated before, my bigger concern is can I trust TT's software to prepare an accurate return.  I may have to call live support again and hope I get someone who knows their stuff and knows TT. But based on past experience with this service, I'm not optimistic.