ROTH IRA Contribution Limit

[reza052759]

Turbo Tax shows the limit for ROTH IRA tax contribution for 2022 is $6,500.00 for individuals 50+. However, google and my financial institution shows it to be $7,000.00. Accountants that I talked to say it is $7,000.00. So what is going on?

[MinhT1 · Accepted solution]

The maximum Roth contribution for individuals aged 50 and over is $7,000.

You may see a reduced amount if your MAGi is at a certain level.

Please read this IRS document for more information.

[GeoffBey]

Why is turbotax penalizing me when I put in my contribution of $7000 which I am eligible for given my age bracket and income? I am 67 and have less then $65 in income...

[DanaB27]

It seems you did not have enough taxable compensation (earned income) to make IRA contributions.

For 2022 the total contributions you make each year to all of your traditional IRAs  and Roth IRAs can't be more than:

• $6,000 ($7,000 if you're age 50 or older), or
• If less, your taxable compensation for the year

Excess contributions are taxed at 6% per year for each year the excess amounts remain in the IRA. The tax can't be more than 6% of the combined value of all your IRAs as of the end of the tax year.

To avoid the 6% tax on excess contributions, you must withdraw:

• the excess contributions from your IRA by the due date of your individual income tax return (including extensions); and
• any income earned on the excess contribution.

The earnings will be taxable on your 2022 tax return.

You will get a 2023 Form 1099-R  in 2024 with codes P and J for the withdrawal of excess contributions and earnings. This 1099-R will have to be included on your 2022 tax return and you have two options:  

• You can wait until you receive the 2023 Form 1099-R in 2024 and amend your 2022 return or
• You can report it now in your 2022 return and ignore the 1099-R when it comes unless there is Box 4 Federal Tax withholding and/or Box 14 State withholding. Then you must enter the 2023 Form 1099-R into the 2023 tax return since the withholdings are reported in the year that the tax was withheld. The 2023 code P will not do anything to the 2023 tax return but the withholdings will be applied to 2023.

To create a Form 1099-R in your 2022 return please follow the steps below:

1. Login to your TurboTax Account 
2. Click on the "Search" on the top right and type “1099-R” 
3. Click on “Jump to 1099-R”
4. Answer "Yes" to "Did you get a 1099-R in 2022?"
5. Select "I'll type it in myself"
6. Box 1 enter total distribution (contribution plus earning)
7. Box 2a enter the earnings
8. Box 7 enter J and P
9. Click "Continue"
10. On the "Which year on Form 1099-R" screen say that this is a 2023 Form 1099-R.
11. Click "Continue" after all 1099-R are entered and answer all the questions.
12. Continue until "Did you use your IRA to pay for any of these expenses?" screen and enter the amount of earnings under "Another reason" if you are over 59 1/2 (if you are under 59 1/2 and removed the excess after December 29, 2022, then enter it next to "Corrective Distributions made on or after December 31, 2022")

Please be aware, code P will say in the drop-down menu "Return of contribution taxable in 2021" but you can ignore that since the follow-up question will tell TurboTax that it will be taxable in 2022.

@GeoffBey 

[GeoffBey]

So I am way over 50 years old.... I don't understand your comment that I may not have enough taxable income.... I am being taxed on over $67,000 dollars in income... at what level of income do I need to take the contribute the full $7000?

[DoninGA]

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@GeoffBey wrote:

So I am way over 50 years old.... I don't understand your comment that I may not have enough taxable income.... I am being taxed on over $67,000 dollars in income... at what level of income do I need to take the contribute the full $7000?

---

Taxable compensation from work.  Such as wages reported on a W-2 or net income from self-employment.  That is the income being referenced.

[GeoffBey]

I am afraid I don't understand..... If it matters that I don't get income from work anymore.... but I am getting taxed on my income for retirement, including some rent money there is different limits what I can contribute to my ira? I just read the government info on it for the third time and I don't see that restriction.... what level can I contribute at? thanks for the guidance!

[fanfare]

"If it matters that I don't get income from work anymore."

It does matter,

if you already sent money to the custodian

you have to submit a "return of excess and earnings" form to get that money out of your IRA.

@GeoffBey 

[GeoffBey]

As I said in the previous message I don't know how much I am allowed... rom everything I read I should be allowed $7000... am I supposed to send all $7000 back?

[fanfare]

$7,000 is contingent on you having compensation of at least $7,000.

If you are not working, you cannot contribute to an IRA.

@GeoffBey 

[GeoffBey]

Yours seems the most clear and helpful answer, but am I wrong to think if I am paying income taxes I should able to reduce taxes in a IRA, even if I am not working?

[VolvoGirl]

You are wrong.  You can only contribute to a IRA or ROTH IRA if you have W2 income from working or a Net Profit from self employment income.  Not just because you pay taxes on other kinds of income.