Why is my military pension being used on roth ira max contributions for Married Joint, with W-2 totals of $163K but TurboTax with military puts me over the $199K max?

Forum|Forum|7 years ago
June 1, 2019
2 replies
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TurboTax Premier is stating I have exceeded the max income limits for contributing to my Roth IRAs. Our Married Joint W-2 income is $163K, but with my military pension, it is over the $189-199K max. I am being told by TurboTax that I have excess Roth IRA contributions and will be paying the 6% penalty for the $4200 (each) we contributed this year.

TurboTax Premier Windows

DanaB27

Level 15

Your Roth IRA contribution might be limited based on your filing status and income, which includes the pension and W-2s. Please see 2018 - Amount of Roth IRA Contributions You Can Make for 2018 for details on the limit.

Excess contributions are taxed at 6% per year as long as the excess amounts remain in the IRA. The tax can’t be more than 6% of the combined value of all your IRAs as of the end of the tax year.

To avoid the excess contributions tax:

withdraw the excess contributions from your IRA by the due date of your individual income tax return (including extensions); and
withdraw any income earned on the excess contribution.

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kevripAuthor

Level 2

This did not answer my question. The question is "Why is TurboTax adding my military pension to my modified AGI which then puts me above the limits mentioned?"

Per IRS p590A, military pensions are NOT compensation and therefore are not allowed for Roth IRA contributions.

Mateo87

Level 2

Your AGI includes all compensation (wages on W-2, salaries, bonuses, self-employment income, etc.), Interest, Dividends, Social Security Benefits, Pensions/Annuities (military retirement), etc. How much you can contribute to a Roth IRA is based on taxable compensation (wages, salaries, bonuses, self-employment income) and your modified AGI (which includes military retirement pension). Your military retirement doesn't count towards compensation but it is included in the modified AGI.

If your modified AGI is above a certain amount, your contribution limit may be reduced. (See Publication 590A, Table 2-1). If your income is between 193,000 but less than $203,000 your contribution is reduced. If it is greater than $203,000 for married filing jointly your contributions are not deductible.

2020PA

Level 2

The response is incorrect. Military retirement is not included in the AGI for purposes of a ROTH IRA. If turbo tax shows it this way without a way to correct it when filing then I may have to use a different service.

https://www.irs.gov/retirement-plans/plan-participant-employee/amount-of-roth-ira-contributions-that-you-can-make-for-2020

What Isn’t Compensation?

Compensation doesn’t include any of the following items.

Earnings and profits from property, such as rental income, interest income, and dividend income.
Pension or annuity income.

DoninGA

Level 15

@2020PA wrote:

The response is incorrect. Military retirement is not included in the AGI for purposes of a ROTH IRA. If turbo tax shows it this way without a way to correct it when filing then I may have to use a different service.

https://www.irs.gov/retirement-plans/plan-participant-employee/amount-of-roth-ira-contributions-that-you-can-make-for-2020

What Isn’t Compensation?

Compensation doesn’t include any of the following items.

Earnings and profits from property, such as rental income, interest income, and dividend income.

Pension or annuity income.

Where in IRS Publication 590-A Contributions to Individual Retirement Arrangements (IRAs) (2019), do you see that military pension income is not to included in the MAGI Worksheet 2-1 Modified Adjusted Gross Income for Roth IRA Purposes, page 40 - https://www.irs.gov/pub/irs-pdf/p590a.pdf#page=40