deductible IRA contribution

[cjob]

I keep getting an advice message in TT that I am able to make a deductible IRA contribution yet cannot find anywhere where I can determine how TT is reaching that conclusion.  I have no earned income so I do not believe I should be able to make an IRA contribution.  I think there may be a bug in the software.  How do I determine TT's logic.  Thank you.

[Opus 17]

What are the sources of your income?

Note that there is a recent tax law change that certain graduate and post-graduate fellowships count as "compensation" for IRA eligibility, even though they are still "unearned income" for all other purposes.  Are you a graduate student or post-doc?

[cjob]

I have a deferred comp distribution and investment income (cap gains/interest/dividends).  Oh, and all of $400 as an election worker.   So unless something changed with the deferred comp distribution qualifications.... But then I should be over any MAGI threshhold.  Would love to see that TT found something I missed but I'm not comfortable the program is right yet.

[Opus 17]

If your deferred compensation is subject to social security tax (it's included in box 3 income even though it is excluded from box 1 income) that counts as compensation for the IRA.  But I'm not sure about the MAGI.

@macuser_22  @dmertz any comments?

[cjob]

Good point, but no.  No FICA required on the distribution.  I keep thinking TT has a bug here and not quite sure how to let them know that.

[macuser_22]

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@cjob wrote:

Good point, but no.  No FICA required on the distribution.  I keep thinking TT has a bug here and not quite sure how to let them know that.

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Are you trying to actually contribute to an IRA in the IRA contribution interview?    The step-by-step IRA "might" reduced your tax is a generic message blindly given to everyone reguardless of income.

Deferred compensation reported in box 11 on a W-2 is not eligible for IRA contributions.

[dmertz]

When you enter a W-2 that has an amount in box 11, TurboTax will ask if it's from a nonqualified deferred compensation plan or a nongovernmental 457(b) plan.  If you answer Yes, TurboTax will treat this amount as not being compensation that will support an IRA contribution.  For some reason, if you answer No, TurboTax will treat it as supporting compensation even though I think that that is wrong.

[cjob]

No.  I am not trying to contribute.  I don't believe I qualify for an IRA deduction, however, in the Review section TT keeps telling me I can reduce my tax liability with an IRA contribution.  They ask a couple questions and then conclude I do qualify for this deduction.  So they aren't saying I "might" be able to.  They are saying I can.  I cannot see how TT is right on this point which means they have a bug of some kind.  I'm hoping they see this string and correct the software because I know many folks trust the software a bit more than they probably should.

[cjob]

DMertz - Hmmm.  The question actually asks if its from a NQ-Pension plan....That to me is different than a NQDC plan.  Anyway.  I said "yes" there since my original response had disappeared somewhere and the message about contributing to an IRA finally disappeared.  Thank you!  And I agree, once it has been identified as  NQDC on the W2 input nothing else should be required.

[macuser_22]

The 2020 Pub 590A states:

The IRS treats as compensation any amount properly shown in box 1 (Wages, tips, other compensation) of Form W-2, Wage and Tax Statement, provided that amount is reduced by any amount properly shown in box 11 (Nonqualified plans).

It does not specify the type of plan .

[cjob]

Macuser - Yes.  Which in my case would be zero.  So if Box 3 is zero then no further input/questions should be required for TT to recognize that the Box 1 amount is not earned income.