Tax Status: Married filing jointly. I want to know where TT would indicate that my wife's traditional IRA contribution exceeded the income limits because I received no warning from the software. I opened a SEP for my wife this year because she had significant 1099 income. Additionally, I learned that you can contribute to both a traditional IRA and SEP. I did both to limit our tax burden. I used TT's recommended SEP calculation and we both contributed that maximum to our traditional IRA's. The mistake that TT failed to catch (or I missed) is that the SEP is considered a work retirement plan so there is a modified gross income limit of $109,000 or less. We exceeded that limit, so the IRS assessed us for the non-qualified contribution. Why didn't the system indicate/flag this somewhere, or where did I miss it in the workflow? Many thanks.
There’s no income limit for contributing to a traditional IRA. BUT the deductibility of the contribution is not allowed. In fact, since the SEP IRA is an employer plan, any traditional IRA contribution is not deductible anyway. For that reason many in your situation opt to contribute to a Roth IRA instead.
The program works best when you complete the interview in a forward motion step by step in order ... so what most likely happened is you entered the IRA contributions in the deductions/credits tab and then went back to the income tab to complete the SEP section but failed to review the deductions/credits tab again after the SEP entries. Always review all sections in order when completing a return ... don't skip about.
Thank you. I am sure that is what I did and just wanted to know how to avoid it in the future. I appreciate your time and the information.
If you open the return again in the downloaded program you posted from and complete the deductions tab again you should see a warning to make the contribution non deductible or remove the contribution.
"In fact, since the SEP IRA is an employer plan, any traditional IRA contribution is not deductible anyway."
Only if MAGI exceeds the limit for the filing status, otherwise some or all of the traditional IRA contribution is still deductible despite having made a SEP contribution.