Tax Year 2023, the IRS says people over 50 can contribute $7,500 to an IRA. We put $15,000 in an IRA today, but TurboTax is saying only $12,630 is deductable. Why?

[timmint]

The $15K was put into two separate IRA's, $7,500 in each one.
We are filing Married, Jointly and both 64 years old.

[timmint]

It just updated and now says only $12,630 of the $15,000 is deductable.

What's going on, is this a TurboTax problem?

[dmertz · Accepted solution]

TurboTax is behaving correctly.  Apparently at least one of you is covered by a workplace retirement plan and your modified AGI for the purpose of deducting a traditional IRA contribution is between $116,000 and $136,000.  As your MAGI in this range changes, the deduction changes.  The change in the deduction from $14,250 to $12,630 is the result of adding income to your tax return than increased your MAGI.

https://www.irs.gov/retirement-plans/2023-ira-deduction-limits-effect-of-modified-agi-on-deduction-i...

You'll find that your tax return includes at least one Form 8606 to report the nondeductible contribution.

It would be beneficial to recharacterize the nondeductible amount to be a Roth IRA contribution instead.  Of course you won't know that actual nondeductible amount until you've completed everything else on your tax return so you need to do that before considering recharacterizing.

[timmint]

I changed jobs in December of 2022 from a company that had a 401K to one without, where I still work now.

Seems unfair, since I quit that job mid-December 2022 and they held out paying my last check until early January 2023. I did not work one single day in 2023 for the company that had a 401K, but since they held off paying me until 2023 I guess I'm out of luck on this one.

Thank You for clearing that up.

[dmertz]

The year for which you are covered is the year that contains the end date of the 401(k) plan year for which additions were made to the 401(k).  If the plan uses a fiscal year rather than a calendar year, any participation in December 2022 would mean that you are covered for 2023 since that plan year would end in 2023.

[timmint]

Thanks for the idea of recharacterizing the part of the money to a RothIRA, I didn't know that was an option.

It looks like I won't even need to recharacterize it.

I haven't yet filed the 2023 taxes or moved the money into the IRA yet, so I'm going to put the max I can into the traditional IRA ($5130 in my case) then put the other $2370 in a new RothIRA to equal the $7,500 limit this year.

From what I'm understanding reading the IRS doc provided, this is my best move.