I have earned income from a part time job. I put 90% of that earned income, about $8000 into the company 401K and showed that when I entered my W2. Therefore, it showed that about $1000 in Block 1 and, $8000 in Blocks 3 and 5 and about $7300 in Block 12a with code D (ret. plan box checked.)
When I later imputed my ROTH IRA contribution of $5000 in Turbo Tax, it showed that I owed about $2000 in taxes after inputting my IRA contribution. Can you please help me understand what happened and how to fix this? My research shows that I can contribute to both a ROTH IRA and a 401K. What am I doing wrong in Turbo Tax? Thank you very much for your support.
First, where on your return is this $2,000 in taxes appearing? Schedule 2 (1040)? On what line?
Second, what is your adjusted gross income?
Hi Bill,
I'm not sure which line the penalty is showing in because I am still in the middle of the Turbo Tax preparation of my tax return. I just checked and it says that I had an excess contribution because my EARNED INCOME was only $1049. This is because I put 90 percent of my income into the company 401K. My total Social Security/Medicare wages are $8429.00. The penalty actually looks like it is $300, not $2000. Sorry I overstated that. That is the current full taxes owed at the moment while I am preparing the Turbo Tax return.
So I guess I did not understand the IRA tax rules? I thought I could contribute to both a 401K and an IRA? But I did not realize that in contributing to a 401K, that it would reduce my EARNED INCOME? Is that what I did wrong? So my last question is, if I keep the money in the IRA, will I continue to be penalized each year? Or is this penalty (about $300 at the moment) a one time penalty? Thank you in advance.
"if I keep the money in the IRA, will I continue to be penalized each year? "
Yes, 6% a year. You would be best served to withdraw the excess by July 15th (this year only).
"I'm not sure which line the penalty is showing in because I am still in the middle of the Turbo Tax preparation of my tax return. "
I assume that you are using the Online product? If so, you can look at your real 1040 and Schedules 1, 2, and 3 at any time.
On the far left, click on Tax Tools, then click on Tools underneath it, then click on View Tax Summary in the center, then click on Preview My 1040 back on the left. Now you will be able to scroll through your 1040 as well as the three Schedules (if you have them).
Take a look and see where the tax appears on Schedule 2 (I assume this is where it will appear).
If you are using the CD/download product, you can go into Forms mode and see every form at any time.
***I am not clear on something - did you have other earned income besides this one W-2?
Hi Bill,
***I am not clear on something - did you have other earned income besides this one W-2?
No, I did not have other earned income. I am a retiree and I thought if I took a part time job, I could put the income I earned in a tax sheltered 401K and also contribute to an IRA. Can you tell me if this is wrong thinking? It seems that since I put most of my earnings in the company 401k, that I am now only able to contribute to the amount showing in Block 1 of my W2, which is $1049? Also, I'm not sure how to correct the IRA overpayment? Any help would be most appreciated. Thank you in advance.
"Also, I'm not sure how to correct the IRA overpayment?"
You need to contact your IRS custodian and request of withdrawal of excess contributions. There is possibly a form online at the custodian's website for this; otherwise, speak to a customer service rep - this is a common enough thing that people do.
Please do this tomorrow (April 15th). Excess contributions to an employers-sponsored plan must be withdrawn by April 15th, and I can't find at the moment whether or not this also applies to IRAs. Better safe than sorry.
When you are entering the 1099-R into TurboTax, I believe that TurboTax will ask you if you want to withdraw the excess by the due date of the return. Answer "yes".
Yes, you can contribute to both, but because the 401(k) contribution reduced your taxable income, the limit was imposed on the Roth IRA.
Hi Bill,
Just a few last questions.
You wrote:
"You need to contact your IRS custodian and request of withdrawal of excess contributions. There is possibly a form online at the custodian's website for this; otherwise, speak to a customer service rep - this is a common enough thing that people do." Did you mean IRA Custodian?
You wrote:
"When you are entering the 1099-R into TurboTax, I believe that TurboTax will ask you if you want to withdraw the excess by the due date of the return. Answer "yes". " An IRA contribution is recorded on Form 5498. So not sure what you wrote?
Also, the excess contribution was to the IRA, not the 401K. I need to fix the over payment to the IRA.
Also, don't I have until July 15 to fix this? Since the tax deadline is now July 15?
thank you in advance.
Please select this link for information to contact phone support
I have turbo tax business for estates and trusts. form 1041, does turbo tax have a ct 1041 you can purchase
Yes, TurboTax can do this. To purchase the Connecticut 1041, select the STATE TAXES tab and purchase the state.
@dtinker What are you trying to do? What do you mean by "fill out" a 1098? For what? Are you asking about a 1098 for mortgage interest? A 1098T for tuition? A 1098E for student loan interest?
I am analzying my long term capital gains tax associated with sale of stocks, mutual funds and a house. I am married and filling jointly with a joint income below $400k including capital gains. Based on income, the federal capital gains rate should be 15% (according to the current tax law which may or may not change). However when I plug in a capital gain of $10,000, Turbo tax 2021 calculates a $2000 tax due equivalent to a 20% rate. Is there a bug in the software that requires a software update?
@EJHERALD I assume you mean that your tax increases by $2,000 when you add $10,000 worth of capital gain income. Although you would appear to be in a 15% bracket for capital gains based on your income, some capital gains are taxed at more than that regardless of your income, as is the case for short-term capital gains and also depreciation recaptured if you had rented out a portion of your home, or used a home office for your business.
Here are some links that you may find helpful:
Things you should know about capital gains
A guide to capital gains tax rates
I have a specific question about a contribution to a Roth IRA, and want to have either a phone or digital conversation with an expert. How do I do this?
Good luck, I ask question here and point out errors that Turbotax customer support agrees are issues. That is all that happens, support says yea that is a problem and no one responded on this web site.
You can certainly ask a question here and someone in our community will reach out. You can also reach out directly here.
Did you have a question or concern? We would be happy to assist you!
I have contacted support by phone and been at two different phone support levels, the last person was going to try and get a ticket. Both levels said it was a problem, shouldn't be doing what it is doing. However also seem to say to use a workaround by overriding Turbotax and entering data in form myself. If I wanted to do that I go back to paper like I use to do. Also, put lengthy post on this web site stating the problem and even showing how the software is making an error that is an audit exception that would cause a problem.
can you give me a number I can just call you; to ask a question?
I filed e-mail ----it was rejected---- reason=AGI is not correct for my wife-----yours support said if wife and I file jointly the AGI is the same--- I entered AGI in wife box and my box the same----the fed rejected ====Trubo said it was because wife and my AGI is not the same-----what do I do????????????????
Turbo Tax phone number can be found here. Additionally, please review the following FAQ for your AGI rejection @Finnmarshall.