Turbotax, we have a problem-spousal IRA

[lfoss1959]

In  2023 I made $6000 and the limit I could deposit to my IRA was $7500.  My husband had plenty of earned income so he contributed to my IRA which I have read on IRS.gov is perfectly fine as long as we file jointly.  This year same situation except I am putting in the limit of $8000.  This year however turbotax is telling me I am contributing too much and it won't recognize my full contribution.  Please either tell me what changed (nothing) or fix your software that I paid over $100 for.  Thankyou!

[DanaB27]

To clarify, is this a Roth IRA or a traditional IRA?

Please note contribution to a Roth IRA may be limited based on your filing status and income. Please see Amount of Roth IRA Contributions You Can Make for 2024. If this is the case you would have an excess contribution. Please see What happens if I made an excess Roth IRA contribution.

Also, the deduction may be limited if you or your spouse is covered by a retirement plan at work and your income exceeds certain levels. Please see IRA deduction limits for details. If you are getting the warning that your income is too high to deduct it then you can make the contribution but the contribution will be nondeductible. 

[lfoss1959]

Sorry but none of that is my problem.  This is a traditional IRA in my name I work very little at a part time job so basically a non working spouse.  My income was $7010 but since I am over 50 I am able to contribute $8000 total.  My husband retired last year but still had $1793(bonus) in earned income of which $990 is to be put into my IRA account.  His w-2 was marked retirement plan but due to his retirement early in the year and no company funds were put into his 401k he wasn't truly covered and he will be requesting a corrected w-2.  The problem is the IRS says I can contribute my $7010 and my husband can contribute the extra $990 because we file MFJ and have the combined earned income to cover it but your turbotax, while it allowed this just fine in 2023, is not allowing it in 2024 and keeps insisting I can only contribute $7010.  AND BTW, I have not found any place in your software (Home and Business) that even mentions a non working spousal IRA contribution.

The fact that you, and expert, don't know this is even more disappointing.  Get back to me when you fix your glitch.

[BillM223]

Hmmmn, it may become important to answer the questions of which version of TurboTax you are using.

I just ran a test in the cd/download version (called "desktop" internally), and it worked fine.

I entered two W-2s, one for your spouse and one for you for $7,010. I set you to be 64, and because this was a leftover test return, the spouse was 55. I had you contribute $8,000 to your IRA your spouse contributed zero. The only question TurboTax had was did you want the entire amount to be deductible (recommended)?

The $8,000 showed up as a deduction on line 20 of Schedule 1 (1040). This happened whether or not I checked that your spouse was covered by a retirement plan at work.

So was there anything different in your return than what I posted above? For example, did your spouse have an IRA and make any contributions to it?

[lfoss]

The version is [phone number removed] and I don't think you went far enough through the steps since I am not at all getting your results.  I have a screenshot and can show you where it says I owe a 6% penalty for over contributing.  

I have tried this every which way I can and still the results are the same.  Contact me and share my screen and you will see.

[lfoss]

OMG!!! You stupid idiots! That was a VERSION number not a PHONE number! I am getting totally disgusted with this whole thing!

[BillM223]

lfoss:

I have no control over the editing to prevent the posting of what appears to be PII (personally identifiable information), But I didn't ask for a version number, I just asked if you were using the Online product.

As for me not going far enough, I went all the way through the IRA contribution interview, and my test ended up with the complete $8,000 deduction.

I would appreciate seeing that screenshot if you can make sure that you have redacted any personally identifiable information.

[lfoss55]

"Hmmmn, it may become important to answer the questions of which version of TurboTax you are using."

I guess you meant which product I was using then not which version as the version as listed in "About TT" is zero 24 zero zero zero zero 3 zero 8.  Product is Home and Business.  Tell me how to get it to you and can send screenshots of all the steps up to and including the penalty page

[lfoss55]

Also I was not referring to you but the computer with my comments of frustration I know it is simply the way it was programed.  

[dmertz]

"My income was $7010 but since I am over 50 I am able to contribute $8000 total.  My husband retired last year but still had $1793(bonus) in earned income of which $990 is to be put into my IRA account."

The law permits only the spouse with the lower compensation to make a spousal contribution.  Because you have higher compensation that your husband, your contribution is supported only by your compensation and not by any of your husband's compensation.  This means that your maximum permissible IRA contribution is $7,010 and TurboTax is properly enforcing this limit.

[lfoss55]

That's odd since I see that no where on the IRS.GOV website instead this is what is said:

"I want to set up an IRA for my spouse. How much can I contribute?

If you file a joint return and have taxable compensation, you and your spouse can both contribute to your own separate IRAs.  Your total contributions to both your IRA and your spouse's IRA may not exceed your joint taxable income or the annual contribution limit on IRAs times two, whichever is less. It doesn't matter which spouse earned the income."  And further it says:

"Spousal IRAs

If you file a joint return, you may be able to contribute to an IRA even if you didn’t have taxable compensation as long as your spouse did. Each spouse can make a contribution up to the current limit; however, the total of your combined contributions can’t be more than the taxable compensation reported on your joint return. See the Kay Bailey Hutchison Spousal IRA Limit in Publication 590-A.

If neither spouse participated in a retirement plan at work, all of your contributions will be deductible.

If you note it doesn't even use the term "earned income" but instead uses "taxable income" which as you surely know includes much more than wages which would certainly give me easily $8000 in my own right. 

I would like to know where you got this info on the lesser earner is the one to receive the contribution when the IRS states plainly that it doesn't matter who has the taxable income as long as it doesn't go over joint taxable income.  

[dmertz]

Everything said in the reference you provided is correct, but it does not list all of the requirements.

Follow the reference to the Kay Baily Hutchison Spousal IRA Limit section of IRS Pub 590-A that is in what you quoted.

https://www.irs.gov/publications/p590a#en_US_2024_publink1000230412

The first sentence there says:  

"For 2024, if you file a joint return and your taxable compensation is less than that of your spouse, the most that can be contributed for the year to your IRA is the smaller of the following two amounts."  [emphasis added]

This requirement that I highlighted is in section 219(c)(2) of the tax code.

In this case, your spouse is the one eligible to make the the spousal IRA contribution (subject to your and your spouse's combined contributions not exceeding combined compensation).

[lfoss55]

I see what you're saying:

"For 2024, if you file a joint return and your taxable compensation is less than that of your spouse, the most that can be contributed for the year to your IRA is the smaller of the following two amounts.

1. $7,000 ($8,000 if you are age 50 or older).

2. The total compensation includible in the gross income of both you and your spouse for the year, reduced by the following two amounts.

   1. Your spouse's IRA contribution for the year to a traditional IRA.

   2. Any contributions for the year to a Roth IRA on behalf of your spouse.

This means that the total combined contributions that can be made for the year to your IRA and your spouse's IRA can be as much as $14,000 ($15,000 if only one of you is age 50 or older, or $16,000 if both of you are age 50 or older).

BUT while this gives limits as to what can be contributed for the person with the lesser income, it says nothing about not being able to use the lesser earned income to max out the other's IRA especially when that lesser earner was covered by a retirement plan.  Phrases like "you can't contribute more than your combined earned income"  and "it doesn't matter which spouse earned the income" leads me to believe the scenario I propose is within the spirit of the law and I will be contacting the IRS to find out for sure.

[lfoss55]

"This requirement that I highlighted is in section 219(c)(2) of the tax code."

Let me ask you first, does this tax code you refer to specifically say the lower earner is prohibited from contributing to the higher earner's IRA?  I'll bet it does not and here's why something else I found while asking that very question on the internet

    "No, it is not against the law for a lower earner to contribute to a higher earner's IRA if both individuals are below the income limits for IRA contributions, as long as the total contribution amount falls within the IRS guidelines for each individual's IRA account; essentially, each spouse can contribute to their own IRA even if one spouse earns significantly less income. "  

So unless you have tax code that states unequivocally that the lower wage earner is prohibited from contributing to the higher earner's IRA, the purpose being to max out the contribution for the spouse NOT covered by a retirement plan then I maintain this is a misinterpretation by Turbotax which should be corrected before people like me are penalized.  I would hate to see TT's integrity and accuracy maligned because they didn't do their due diligence.  

[dmertz]

The tax code specifies what is permitted.  Nothing beyond what is permitted is permitted.