1051588
I left my job in early 2019 and converted my 401k into a rollover IRA. I then started a consulting business and contributed to this rollover IRA. When entering Personal: Deductions and Credits, I now get a message after I entered a contribution to the rollover IRA. "Income Too High to Deduct an IRA contribution" My income was 134k and over the 123k allowed, but the rest of the message says it is because I was covered by a retirement plan at work. My 401k coverage was only for the first 3 months.
You'll need to sign in or create an account to connect with an expert.
The IRS considers you covered by an employer's plan if you were covered at any time during the tax year.
Related information: 2019 IRA Deduction Limits - Effect of Modified AGI on Deduction if You Are Covered by a Retirement ...
It is confusing since I put $2800 in my IRA and now have to pay taxes on it. Then when I take it out, I have to pay taxes on it again.
You are not paying taxes on your IRA contribution, you are simply not getting a deduction for the contribution. When a traditional IRA contribution is nondeductible, your tax return is required to include Form 8606 (which TurboTax does automaically) to record the nondeductible contribution, with the carryforward amount appearing on line 14. When you eventually take distributions from you traditional IRAs, you'll file Form 8606 again, carrying the amount from line 14 of your most resent previously filed Form 8606 to line 2 of the current Form 8606 to be used in calculating the proportion of your basis in nondeductible traditional IRA contributions that is included in your distribution, so there is no double taxation of that money.
Because the distributions will include a proportionate amount of basis, you'll always have some basis in your traditional IRAs until your traditional IRAs are fully distributed, leaving you with $0 in traditional IRAs at year end.
If you have no other money in traditional IRAs, you'll want to consider converting all of you traditional IRA money to Roth. That way, once the requirements are met, the growth in your investments in the Roth IRA will be tax free instead of being taxable growth as it is in a traditional IRA.
Still have questions?
Questions are answered within a few hours on average.
Post a Question*Must create login to post
Ask questions and learn more about your taxes and finances.
rhondacburke
New Member
chinyoung
New Member
user17557017943
New Member
mailsaurin
New Member
meltonyus
Level 1