IRA deduction

[rnagardner3265]

Turbo tax denied my IRA deduction for me and my husband.  When I click on the why, it says no w-2 box 1 income.  Although we are retired, box 1 on the import   shows way more income than the 14K I am attempting to claim as a deductible IRA (for me and my husband)  I chatted with a Turbo tax representative who said possibly your AGI is too high to allow this deduction.  So I went to the IRS web site, and basically it says if you are under a certain age (which we both are) , and are not covered by a plan you can contribute to a traditional  IRA.  

Help please!  [email address removed]

[VolvoGirl]

Box 1 on the import of what?  Do you have a W2?  You said you are retired.  You need earned income from W2 wages or a Net Profit from self employment.

[rnagardner3265]

Sorry, box one of my husband's w-2.  Again, he is retired but has w-2 income.  Box 1 and box 11 match (non qualified plans.)  We have deducted a traditional IRA for the last 7 years of his retirement in the same situation (not covered by a retirement plan, box 1 and box 11 match) and this year Turbo says its not deductible.  Did I check an incorrect answer somewhere?

[dmertz]

Deferred compensation is not compensation that can be used to support an IRA contribution.  The IRS treats as supporting compensation on a W-2 the amount in box 1 minus the amount in box 11.  Since both of these boxes show the same value, no IRA contribution can be based on this income.

Any IRA contributions that you already made based on the mistaken belief that this income would support the contributions are excess contributions subject to penalty unless distributed by an explicit return of contribution (not a regular distribution) by the due date of your tax return from any IRAs to which these contributions were made.

[rnagardner3265]

Hello Dmerz  Thank you for your answer.  I understand  However we have been in the same situation since 2015 when my husband retired and the IRA's were always deductible with no message that they were not from Turbo, and no issues with the IRS re our filed returns.  Has something changed?

[dmertz]

Nothing has changed.  If 2015 TurboTax did not inform you that this was an excess contribution, you either did not enter the W-2 correctly into 2015 TurboTax or there was some other source of compensation (perhaps your compensation if you were working) that supported the contribution.

If there was no compensation in 2015 to support the contribution for 2015, it's an excess contribution subject to a 10% excess contribution penalty every year that it remains in the account, six years so far.

[rnagardner3265]

Actually I have used Turbo Tax every year (including and after my husband retired (2015-present) all with the same situation:  Deferred compensation.  Turbo never warned that this was disallowed.  And I don't believe I could have made an error entering w-2's since I always import them.

The odd thing is thad I am in a discussion with the IRS re a CP 2000 for year 2018 over disallowed IRA deductions.  My husband's former employer checked box 13 (covered by retirement plan) erroneously.  The IRS asked for corrected w-2's or a letter of explanation from his employer explaining that he actually was not covered (which we have provided.)  However there was no mention of excess or non deductible IRA's, even though every year Box 1 and box 11 have matched.   

I guess I'm surprised (and perturbed) that Turbo didn't advise me, correct this.  Unless there is some other box (other than W-2 import) that I'm not checking.

[dmertz]

Simply importing the W-2 is insufficient.  You must always answer questions about the W-2.  In this case, the amount present in box 11 causes TurboTax to ask if the distribution was from a nongovernmental 457(b) or a nonqualified plan, to which you must answer Yes, otherwise TurboTax will treat the distribution as compensation which supports an IRA contribution.  Had you answered Yes, TurboTax would have not treated the box 11 amount as supporting compensation.

I don't know why TurboTax even asks this question since amounts in box 11 are only supposed to be from these types of plans.  Perhaps the use of box 11 was different many years ago and the question being asked by TurboTax is vestigial.  This would not be the only place in TurboTax were an unnecessary question is asked that results in problems if the user gives anything other than the only possible correct answer.  It's also possible that this question is present in TurboTax because employers sometimes misuse box 11, but if that's the case the employer should be asked to provide a corrected W-2.  It's seems problematic that TurboTax would have a mechanism to allow the box 11 entry to be ignored.

[rnagardner3265]

Thank you,  As I said I am surprised that the only issue the IRS had with our 2018 return was box 13 was inappropriately checked.   We're dealing with that (and we actually dealt with it in 2017 successfully with no mention of box 1 and box 11 matching)