The IRS states I can contribute $8000 to my Roth IRA, because the MAGI includes tradition IRA deductions - it is NOT limited to EARNED income as Turbotax states! Help!

[trevor-wood]

See IRS Pub. 590-A, Worksheet 2-1: Modified Adjusted Gross Income for Roth IRA Purposes. Do I continue with my 2024 return even though Turbotax thinks I have "excess contribution"?

[VolvoGirl]

Did you read pages 38 and 39 of pub 590A?  Did you make any Traditional IRA contributions?  If you got any 1099R for IRA conversions or rollovers do not enter them as new IRA contributions.  Only enter them from the 1099R nowhere else.  

Is your earned income from W2 wages or Net Profit on Schedule C less than the 8,000 limit?  You need earned income to contribute to either a Traditional IRA or ROTH IRA.  And the amount you can contribute is for both combined, not each.  

[trevor-wood]

I don't know what are the specific pages 38 and 39 of pub 590A, since I'm only viewing the publication online. I did you make any Traditional IRA contributions. I do not have any IRA conversions or rollovers. My wife's Roth IRA contribution is limited to her earned income (from W-2). My Roth IRA contribution appears to limited to my Schedule C net income less my contribution to my pension and less something else, since my calculation is twice that of Turbotax, although still less that the $8000 limit. Does pages 38 and 39 of pub 590A state that the contribution is limited to "earned income"?

[DaveF1006]

No. Magi does not include traditional IRA contributions.

[trevor-wood]

IRS Pub. 590-A states that traditional IRA "distributions" are included in the MAGI. But, now I have read in the publication about the contribution limit to a Roth IRA and it states:

Roth IRAs only. If contributions are made only to Roth
IRAs, your contribution limit is generally the lesser of:
• $7,000 ($8,000 if you are age 50 or older), or
• Your taxable compensation.

"Your taxable compensation" is really your "earned income", so Turbotax is right!

It just takes time to dig into the IRS publication!

Thanks to VolvoGirl and Dave for responding to my question and helping me to investigate further.