Roth IRA Contributions

[Businessprofile]

In 2018, I contributed the maximum amount allowable for my Roth IRA, but when I went to file my taxes in April 2019, TurboTax indicated that I could NOT submit a contribution at all.  I had to go to my bank and went to great effort to have the amount retracted.

There was some lame notation but I don’t remember what it was.  Was this because my income was only $17,000 +/-)?  I don’t think that should be the case if it was.  For I could have used my savings or cash-on-hand to make the contribution.  Do you have an idea why this happened? 

[DanaB27]

First, for 2018 your annual total contributions to all of your traditional and Roth IRAs cannot be more than:

• $5,500 ($6,500 if you're age 50 or older), or
• your taxable compensation for the year, if your compensation was less than this dollar limit.

If you didn't earn any income from a job then you aren't allowed to make a contribution. 

Also, there is a Roth IRA contribution limit based on your filing status and income. For example, if you are filing married filing separately then if you have an Adjusted Gross Income (AGI) of more than $10,000 then you are not allowed to contribute. 

Please see this link for more detailed information: IRS Retirement Topics - IRA Contribution Limits

[rrelick]

The IRS publication advises since I am over 50, I can contribute $7,000 to my Roth IRA as well as my wife.  When I enter $7,000 in TurboTax, I am told this is a mistake and I can only contribute $6,500, not $7,000.  Is Turbotax correct or is the IRS correct?  Why do I get an error message?  Thanks

[ThomasM125]

You should normally be able to contribute up to $7,000 to your IRA since you are over 50. I suggest you verify that you entered your correct birthdate in the Personal Info section of TurboTax. 

Also, your contribution may be limited because of your income, but because TurboTax is mentioning $6,500 which is the normal contribution limit, I don't think that is your issue.

[rrelick]

Thanks for the reply.  I am 70 and my birthdate on TurboTax is correct.  Again, I have no idea where the $6,500 comes from which TurboTax says is the max I can contribute.  Shouldn't it either be $6,000 if under 50 years old or $7,000 if over 50?  The IRS website agrees with $7,000 if you are over 50.  Has TurboTax updated their software?  Is there an issue with total income?

[macuser_22]

Perhaps you only have $6,500 of taxable compensation *to* contribute.

The most you can contribute to all of your traditional and Roth IRAs is the smaller of:

For 2019 and 2020, $6,000, or $7,000 if you’re age 50 or older by the end of the year; or
your taxable compensation for the year.

(Taxable compensation is generally wages that you worked for - W-2 or net self-employed income minus the deducible part of the SE tax, but can include commissions, certain alimony and separate maintenance, and nontaxable combat pay ).

See IRS Pub 590A "What is compensation" for details:
https://www.irs.gov/publications/p590a#en_US_2018_publink1000230355

See this IRS article for Roth contribution limits:

https://www.irs.gov/retirement-plans/roth-iras

[rrelick]

Thanks for the latest reply.  My self employed gross income was $50,000.  My self employed net income was $11,000.  Still not clear with this since contributing $7,000 is less than my net income of $7000.

Again is it not either $6,000 or $7,000 max.  So where does the extra $500 come from causing a max of $6,500 according to TurboTax?

[macuser_22]

I cannot see your tax return to know.

What is the total of your 1040 line 1  plus Schedule 1 line 3 minus schedule 1 line 14?

Also, if you have a W-2, subtract box 11 from 1040 line 1.

[rrelick]

I have no W-2s. Only 1099-NECs.  Total after going through what you have suggested is $10,200.

Not sure what else to do.

Will probably do what TurboTax suggests which is to go with $6,500 into my Roth IRA and not worry about the $7,000 max.

Thanks

[macuser_22]

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@rrelick wrote:

I have no W-2s. Only 1099-NECs.  Total after going through what you have suggested is $10,200.

Not sure what else to do.

Will probably do what TurboTax suggests which is to go with $6,500 into my Roth IRA and not worry about the $7,000 max.

Thanks

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If you are using the online print all forms and worksheets and look at the "IRA Deduction Worksheet" line 1 for the allowable amount.   The 1040 and schedules should show where that came from.