Is TurboTax Wrong about IRA limit for MAGI less th...
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SolutionArchitect
Returning Member

Is TurboTax Wrong about IRA limit for MAGI less than 196K and maried filing joint with spouse covered by work plan?

TurboTax Deluxe 2020 tells me that combined MAGI of 144K is too much to allow the IRA contribution. Is TurboTax wrong?

The following is a portion of a table found at:

https://www.irs.gov/retirement-plans/plan-participant-employee/2020-ira-contribution-and-deduction-l...

If Your Filing Status Is...

And Your Modified AGI Is...

Then You Can Take...

married filing jointly with a spouse who is covered by a plan at work

$196,000 or less

a full deduction up to the amount of your contribution limit.

 


I am covered by a plan at work. She is not. Our combined MAGI is less than 196,000. She is over 50, so shouldn't she be able to contribute up to $7000.

 

Yet, here is what TurboTax says:

Marie’s MAGI is $144,175 (it’s not, that’s our combined MAGI), which puts it over the limit for IRA deductions. To deduct a contribution, your can’t have a MAGI over $124,000 while being covered by retirement plan at work (she’s not, I am)

 
7 Replies
SolutionArchitect
Returning Member

Is TurboTax Wrong about IRA limit for MAGI less than 196K and maried filing joint with spouse covered by work plan?

What the IRS says under "What's new for 2020?": 

Modified AGI limit for traditional IRA contributions. For 2020, if you are covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified AGI is:

  • More than $104,000 but less than $124,000 for a married couple filing a joint return or a qualifying widow(er),

  • More than $65,000 but less than $75,000 for a single individual or head of household, or

  • Less than $10,000 for a married individual filing a separate return.

However, right after that it says:

 

Modified AGI limit for certain married individuals.

If you are married and your spouse is covered by a retirement plan at work and you aren’t, and you live with your spouse or file a joint return, your deduction is phased out if your modified AGI is more than $196,000 (up from $193,000 for 2019) but less than $206,000 (up from $203,000 for 2019). If your modified AGI is $206,000 or more, you can’t take a deduction for contributions to a traditional IRA.

 

Seems like the first applies to me and the second applies to her.

DanaB27
Employee Tax Expert

Is TurboTax Wrong about IRA limit for MAGI less than 196K and maried filing joint with spouse covered by work plan?

Yes, you are correct about the limits and if your wife wasn't covered by a retirement plan at work she should be able to deduct the traditional IRA contribution. Please keep in mind if she had a retirement plan at work for one day, then she is considered to been covered by a retirement plan for the year and she won't be able to deduct the traditional IRA contributions if your MAGI is  above $124,000.

 

Please check her W-2 entry if the retirement plan in box 13 is checked or is box 12 indicates any retirement contributions.

 

  1. Login to your TurboTax Account 
  2. Click on "Search" on the top right and type “W-2”
  3. Click on “Jump to W-2”
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dmertz
Level 15

Is TurboTax Wrong about IRA limit for MAGI less than 196K and maried filing joint with spouse covered by work plan?

TurboTax does the calculation correctly.

 

"Marie’s MAGI is $144,175 (it’s not, that’s our combined MAGI),"  There is only one MAGI on a joint tax return and is the MAGI of both of you.

 

In addition to verifying that Marie's W-2 does not have box 13 Retirement plan marked, make sure that you have identified your W-2 as belonging to you, not to Marie.  Edit your W-2 in TurboTax to check.

 

If Marie's W-2 has box 13 Retirement plan marked, perhaps the company provides a pension plan that would make her covered.

SolutionArchitect
Returning Member

Is TurboTax Wrong about IRA limit for MAGI less than 196K and maried filing joint with spouse covered by work plan?

That was it! I had box 13 checked incorrectly.

ClintinWC
Level 1

Is TurboTax Wrong about IRA limit for MAGI less than 196K and maried filing joint with spouse covered by work plan?

I do not understand why TT is limiting our IRA contribution for my spouse (I'm retired)  She worked 3 months as an independent contractor in 2020.  TT say our MAGI is $154.091 and we can't have a MAGI over $124k while being covered by a retirement plan at work.  She is not covered.... she has no W2, she is paid by 1099.   (Most other answers say to check box 13 on a W2)

 

She is over 50 which means she should be able to contribute $7k, which we did (Her earned income for the work she did was $12K.)

Not only is TT saying it isn't deductible it is saying we have to pay an "over contribution" penalty.

macuser_22
Level 15

Is TurboTax Wrong about IRA limit for MAGI less than 196K and maried filing joint with spouse covered by work plan?


@ClintinWC wrote:

I do not understand why TT is limiting our IRA contribution for my spouse (I'm retired)  She worked 3 months as an independent contractor in 2020.  TT say our MAGI is $154.091 and we can't have a MAGI over $124k while being covered by a retirement plan at work.  She is not covered.... she has no W2, she is paid by 1099.   (Most other answers say to check box 13 on a W2)

 

She is over 50 which means she should be able to contribute $7k, which we did (Her earned income for the work she did was $12K.)

Not only is TT saying it isn't deductible it is saying we have to pay an "over contribution" penalty.


Does she have a self-employed retirement plan?   SEP, SIMPLE, SE 401(k) reported on schedule C?

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
dmertz
Level 15

Is TurboTax Wrong about IRA limit for MAGI less than 196K and maried filing joint with spouse covered by work plan?

macuser_22 meant to ask if she has a self-employed retirement deduction reported on Schedule 1 line 15, not on Schedule C (based on the net profit reported on Schedule C).

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