Traditional IRA deduction

[Abilene74]

After inputting my husband's IRA contribution, TurboTax indicated that he could not deduct the contribution because his MAGI was over $123,000 while being covered by a retirement plan at work.  He is not covered by a retirement plan at work.  He changed jobs in March to a job that did not have any retirement plan.  Shouldn't he be allowed to contribute based on the income earned at the new job that did not have a retirement plan?

[JamesG1]

W-2 box 13 'retirement plan' on just one W-2 on the tax return may limit your ability to get tax incentives for other retirement plans like a traditional IRA.

Please see this TurboTax Best answer. 

"Form W-2, Box 13

The “Retirement plan” indicator in Box 13 shows whether an employee is an active participant in your company’s plan. If this box is checked, it lets the recipient know that depending on their filing status and modified adjusted gross income, they may not be entitled to a full deduction for their traditional IRA contributions."  See this IRS publication.

[Abilene74]

Both W-2s are blank for box 13.  I double-checked the W-2s and both are blank.  I left those boxes blank on TurboTax.

[MinhT1]

Are you covered by a retirement plan at work? As it can also affect your husband's IRA deduction.

In fact, if your husband is not covered by a retirement plan and work and you are, his IRA deduction is reduced for joint MAGI between $193,000 and $203,000, and phased out for MAGI above $193,000.

Please read this IRS document for more information.

[macuser_22]

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@Abilene74 wrote:

Both W-2s are blank for box 13.  I double-checked the W-2s and both are blank.  I left those boxes blank on TurboTax.

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Covered by a retirement plan at work is usually indicated by box 13 on your W-2.

Make sure the W-2 (s) were entered for the correct spouse.
  Make sure that the IRA contribution is for the correct spouse.

Check your W-2 box 12 also.

TurboTax makes that determination if any of the following are true:

1) Box 13 (retirement plan) on your (or spouses) W-2 is checked,
2) Box 12 on your (or spouses) W-2 contains codes D, E, F, S, or AA/
3) You answered “yes” to the “Are you covered by a Retirement Plan at work” in the interview.
4) You have a self-employed retirement plan.

[Abilene74]

No, I do not have a W-2 as I am retired. 

[JamesG1]

If there are no W-2's on the tax return, are you reporting any earned income?  Are you reporting self-employment income?

"Compensation for purposes of a traditional IRA includes wages and salaries, commissions, self-employment income, alimony and separate maintenance, and nontaxable combat pay."

[Abilene74]

No earned income for me, only 1099-R. My husband has 1099-R plus the W-2s. 

[DaveF1006 · Accepted solution]

 According to this Turbo Tax link, the IRS considers you covered by an employer's plan if you were covered at any time during the tax year. 

[Abilene74]

My husband did participate in a 403-B for his first two months of the year.  We'll correct the IRA contribution for last year and move to this year.  Thank you.

[jhahle]

I have a slightly different situation. I went from full-time to part-time in 2021. My participation in my company's 401K retirement plan ended 12/31/2021.  A $19.00 deduction was taken from my last 2021 pay period, which ended on 12/31/2021. However the pay date was 1/7/2022, so the company checked Box 13, which is limiting the deductions for my wife's and my IRA contributions. Should I challenge that on the grounds that the deduction was for the 2021 plan, even though paid in 2022, and I was not actually covered by the retirement plan in 2022?

[JulieS]

It depends on what you mean by challenge. If you mean contact your employer and tried to get a corrected W-2 form, you could do that. 

If you mean challenge the IRS, no, I don't recommend that. Their position will be that your W-2 form clearly shows that you were eligible for at least part of the year.