Turbotax, we have a problem-spousal IRA

[browdl]

Ifoss55,I have the exact same problem.  I agree that the cited tax code supports your point, rather than refutes it.  Very frustrated with TT, costing me thousands of dollars here!

[dmertz]

Under the rules for statutory construction, if the tax code was intended to permit the spouse with the higher compensation to make a spousal contribution supported by compensation of the spouse with lower compensation, there would have been no reason for the statute to include paragraph 219(c)(2)(B).  The entire purpose of paragraph 219(c)(2)(B) is to limit eligibility to make a spousal contribution to only the spouse with the lower compensation.

[jnfrench]

The rules state that the combined earned income of both parties can be used to calculate the maximum contribution and it can then go into one or other or both IRAs.

Some of the answers above are incorrect. Also, TT has a bug that affects the IRA calculator which stops it from following the rules.

[dmertz]

"The rules state that the combined earned income of both parties can be used to calculate the maximum contribution and it can then go into one or other or both IRAs."

No, that's not what the tax code says.  Only the spouse with the lower compensation is permitted to make a spousal contribution supported by the the other spouse's compensation.  That's explicit in tax code section 219(c)(2)(B).  The spouse with the higher compensation is not permitted to use any of the compensation of the lower-compensated spouse to support the higher-compensated spouse's contribution.  Also, to make a spousal contribution the spouses must file jointly.

TurboTax calculates the permissible contribution amounts correctly.

[jnfrench]

This is the example stated in the tax code:

Example.

You and your spouse are both age 53. You both work and you both have a traditional IRA. You earned $3,800 and your spouse earned $48,000 in 2025. Because of the Kay Bailey Hutchison Spousal IRA limit rule, even though you earned less than $8,000, you can contribute up to $8,000 to your IRA for 2025 if you file a joint return. Your spouse can contribute up to $8,000 to their IRA. 

This clearly states that both IRAs can be fully funded if there is enough total earned income. In this example, the income from the higher earner is being used to fund the IRA of the lower earner. NOT THE OTHER WAY AROUND.

[dmertz]

"In this example, the income from the higher earner is being used to fund the IRA of the lower earner. NOT THE OTHER WAY AROUND."

Correct.  That's what's permitted.  Your previous statement implied that the lower-spouse's compensation can be used to support the higher-compensated spouse's contribution, but that's not permitted.

For example, if you earned $4,000 and your spouse earned $3,000, your maximum contribution would be $4,000.  If you made no contribution, your spouse could make a $7,000 contribution.

[jnfrench]

Here is the bug.

A earns 3678, B earns 150.

[jnfrench]

Or, to use (something closer to) your example:

Still a bug.

People are being misled with this calculator tool because it does not correctly allow for the spousal IRA contribution. If the code was correct, it would not say that it is over the limit. It needs to be fixed.

[dmertz]

Yes, your first example demonstrates a bug.  That appears to be a new page in online TurboTax for this year.  The desktop version of TurboTax does not appear to have that page and does the calculations correctly.

I suspect that if the online version did not block the entry of proper spousal contributions, the underlying tax forms would be prepared correctly.

TurboTax developers seem to be adding a bunch of buggy fluff to the online version this year.

[jnfrench]

Both examples are bugs. I have the desktop version. That is a screen print from it. It was also in the 2024 version. The calculator tool is what people would use to determine the maximum they could contribute so this error in the software could easily leave thousands on the table for many, many users.

[dmertz]

Which desktop version?  I am unable to find that page in the Deluxe version.

[jnfrench]

Mine is Home and Business. But I expect it is in Deluxe. Under Other Tax Situations/IRA Tool.

[dmertz]

No IRA Tool in Deluxe.  The problem is apparently with the tool.  You should be able to work around this problem by entering the contributions directly on the IRA Contributions Worksheet in forms mode or by making the entries under Deductions & Credits.

[jnfrench]

I agree that it can be entered in the form. But I know the rules. People who don't know the rules will use the tool because it says it will save them money. Which it may not. In fact, if I had not double checked, I may have missed out!

Anyway. Thanks for your engagement on this topic. Hopefully, visitors will get something from the information we have exchanged.