Prior Year Excess IRA Contribution

[Topangamama]

In 2020, I made an excess IRA contribution of $4992 and my husband made an excess IRA contribution of $3164.  We did not withdraw the contribution and paid the tax penalty on forms 5329, preferring to "work off" the excess contribution in 2021.  In completing our 2021 return, Turbotax shows my prior year's excess contribution as $4992 but when indicating how much of my remaining excess contribution I would like to credit towards my 2021 IRA, it shows the excess contribution as $2797.  

TT shows my husband's excess contribution and the amount available to credit towards this year's IRA as $3164.  We are both over 50, so I'm not sure why there is a discrepancy?

[DanaB27]

To recap, your husband is able to apply the full excess contribution as a 2021 contribution but when you are are applying the excess contribution to 2021 your get another penalty message because of excess contribution?

It might be that your 2021 Roth contribution was limited because of your 2021 Modified Adjusted Gross Income (MAGI). Please see 2021 - Amount of Roth IRA Contributions You Can Make for 2021.

Another option might be that you didn't have enough taxable compensation (earned income like wages, self-employment income) to make the contribution.

[Topangamama]

Thanks for your reply.   To clarify, I'm not getting a penalty message but TT is suggesting I can contribute up to $4203 to my IRA after carrying forward my excess contribution of $2797.  I don't understand why the program shows my excess contribution as $4992, but then shows the amount applied to 2021 as $2797?  I looked up my 2020 return and $4992 was  listed on form 5329.

This is a regular IRA, not Roth.

I would like to maximize the amount I can contribute to my IRA for tax purposes, but I don't want to over-contribute and be penalized.  

[DanaB27]

To clarify, the program carried over on the "Enter Excess Contributions" the amount of $4,992 but on the next screen "How Much Excess to 2021?" it shows $2,797 and it won't let you edit it? 

It would be helpful to have a TurboTax ".tax2021" file that is experiencing this issue. You can send us a “diagnostic” file that has your “numbers” but not your personal information. If you would like to do this, here are the instructions for TurboTax Download: 

1. On your menu bar at the very top, click "Online"
2. Select "Send Tax File to Agent"  
3. Click "Send"
4. The pop-up will have a token number
5. Reply to this thread with your Token number. This will allow us to open a copy of your return without seeing any personal information.  

We will then be able to see exactly what you are seeing and we can determine what exactly is going on in your return and provide you with a resolution.

The instructions for TurboTax Online: 

1. From the left menu select Tax Tools. 
2. Then select Tools below Tax Tools. 
3. A window will pop up which says Tools Center.  
4. On this screen, select Share my file with Agent. 
5. You will see a message explaining what the diagnostic copy is. Click okay through this screen and then you will get a Token number. 
6. Reply to this thread with your Token number. This will allow us to open a copy of your return without seeing any personal information.  

[fanfare]

@Topangamama 

"how much of my remaining excess contribution I would like to credit towards my 2021 IRA"

 an excess contribution cannot be credited toward your 2021 IRA.

it is your allowed contribution this year that can be applied to reduce the some or all of the excess.

After that, maybe you have allowed contribution left and you can make a reduced 2021 IRA contribution.

the calculation must be down twice if you and your spouse both had an excess contribution.

[Topangamama]

Since both my husband and I are over 50 and have a combined earned income of over $14K, my understanding is that our allowed contribution would be $14K.  TT is suggesting I can still make an IRA contribution of $4203, but I'm not clear why since my previous year's excess contribution was $4992 which would make my contribution $9195?  The program shows the amount applied to 2021 as $2797.  

Maybe there's something I'm not considering, but when I look at my husband's excess contribution ($3164) and the amount TT suggests he is allowed to contribute ($3836), it equals $7K.  Why is mine not the same?  Is there an error in the program?

[Topangamama]

I believe I can edit the number, but why is this happening in the first place?  I'm not a tax expert, so I'm depending on the program to make the proper calculations.  Hence the reason for my question - is there an explanation for why the program would show $2797 on the next screen and not $4992?

I will do what you suggest and get a token number so that you can take a look at it.

Thanks for your help.

[Topangamama]

My token number is 988917.  

Thanks again for looking into it.

[DanaB27 · Accepted solution]

I reviewed your file. You have a taxable IRA distribution on line 4b of Form 1040 ($2,195) this is entered on Form 5329 line 11 and therefore it is correct that you only have an excess remaining of $2,797 to apply to 2021.

@Topangamama

[Topangamama]

Thank you for reviewing my file, it all makes sense now.