topic TurboTax is saying I overcontributed to my IRA. The max limit for 2020 is $19,500. Both my husband and I invested slightly more than $6,000. I'm not sure what to do? in Retirement tax questions

TurboTax is saying I overcontributed to my IRA. The max limit for 2020 is $19,500. Both my husband and I invested slightly more than $6,000. I'm not sure what to do?

zahnkellij — Sun, 21 Mar 2021 07:10:25 GMT

The max amount for Catch-up Contribution is $6500, but we are both well less than 50y/o. Not sure what has happened.

Re: TurboTax is saying I overcontributed to my IRA. The max limit for 2020 is $19,500. Both my hu...

DanaB27 — Sun, 21 Mar 2021 12:13:26 GMT

The total contributions you make each year to all of your traditional IRAs and Roth IRAs can't be more than:

$6,000 ($7,000 if you're age 50 or older), or
If less, your taxable compensation for the year

Excess contributions are taxed at 6% per year for each year the excess amounts remain in the IRA.

To avoid the 6% tax on excess contributions, you must withdraw:

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

Please request a withdrawal of excess contribution plus earnings with your financial institute.

The earnings will be included in your taxable income on your 2020 tax return. Since you are under 59 ½ then you will have an 10% early withdrawal penalty on the earnings.

You will get a 1099-R 2021 in 2022 with codes P and J (for Roth IRA) or 1 (for traditional IRA) for the withdrawal of excess contribution plus earnings. This 1099-R will have to be included on your 2020 tax return and you have two options:

You can wait until you receive the 1099-R 2021 in 2022 and amend your 2020 return or
You can report it now in your 2020 return and ignore the 1099-R when it comes unless there is Box 4 Federal Tax withholding and/or box 14 State withholding. Then you must enter the 2021 1099-R into the 2021 tax return since the withholding is reported in the year that the tax was withheld. The 2021 code P will not do anything in 2021 tax return but the withholding will be applied to 2021.

To create a 1099-R in your 2020 return please follow the steps below:

Login to your TurboTax Account
Click on the Search box on the top and type “1099-R”
Click on “Jump to 1099-R”
Answer "Yes" to "Did you get a 1099-R in 2020?"
Select "I'll type it in myself"
Box 1 enter total distribution (contribution plus earning)
Box 2 enter the earnings
Box 7 enter P and J (for Roth IRA) or 1 (for traditional IRA)
Click "Continue"
On the "Which year on Form 1099-R" screen say that this is a 2021 1099-R.

Re: TurboTax is saying I overcontributed to my IRA. The max limit for 2020 is $19,500. Both my husband and I invested slightly more than $6,000. I'm not sure what to do?

dmertz — Sun, 21 Mar 2021 12:49:08 GMT

$19,500 and $6,500 catch-up are the limits for contributions to a qualified retirement plan like a 401(k), not the limits for IRA contributions. A qualified retirement plan like a 401(k) is not an IRA.

Enter amounts shown in box 12 of your W-2 only in box 12 of TurboTax's W-2 form, nowhere else in TurboTax. If you entered any of these under Deductions & Credits, go back and remove the entries of these that you made under Deductions & Credits.

Re: TurboTax is saying I overcontributed to my IRA. The max limit for 2020 is $19,500. Both my hu...

Jen White — Tue, 05 Apr 2022 00:29:45 GMT

Turbo tax is saying I over contributed saying my income is 0, which is not, when earlier in the program it is telling me since I am 59, I can still defer 25,000 to IRAs? So confused, this has never happened to me before...

Re: TurboTax is saying I overcontributed to my IRA. The max limit for 2020 is $19,500. Both my hu...

SweetieJean — Tue, 05 Apr 2022 00:42:04 GMT

@Jen White What type of 2021 income did you have? It must be from working, or a profit from self-employment. And $25,000 is too much for an IRA anyway.

Re: TurboTax is saying I overcontributed to my IRA. The max limit for 2020 is $19,500. Both my hu...

FangxiaL — Tue, 05 Apr 2022 00:46:59 GMT

The maximum allowed for IRA contribution is the lesser of your earned income or $7000. You can defer up to $26,000 in your 401(k) plan, but not your IRA account. If you don't have any earned income, no IRA contribution is allowed.

If you did not put money into your IRA account outside of your 401(k) account, do not enter any information in the IRA contribution section.

@Jen White