Limited IRA Deduction Due to Spouse Covered by Employee Retirement Plan Contributions

[ardmoreroad]

We are married filling jointly.  Our combined MGI is less than $120,000 but my wife’s 2023 contribution of $7500 (we are both in our 70s and both contributed $7500 in 2023) is being limited to $1880 due to her employee retirement contribution to her retirement plan in 2023 (of only $32.00). I can’t understand the reason. Can someone please enlighten me?  Thanks.

[MinhT1]

As she was covered by a retirement plan at work even for part of the year, box 13 - Retirement plan has to be checked and she's considered covered for 2023. This is the tax law.

She files jointly and is allowed a full deduction of her IRA ($7,500) if the joint modified MAGI is less than $116,000. She has a reduced deduction for modified MAGI between $116,000 and $136,000, and no deduction for modified MAGI above $136,000.

Please read this IRS document for more information.

[ardmoreroad]

Thanks for your quick reply. However, our MAGI is $104,000 so, it seems, she should be allowed the full deduction. Instead she is only being allowed $1880 out of the $7500. I cannot locate any information within TurboTax to explain this other than what you’ve given me. Any thoughts where to look?

[MinhT1 · Accepted solution]

You have to use Modified AGI to look up the table.

Form 1040 or 1040-SR.

If you file Form 1040 or 1040-SR, refigure the amount on line 11, the “adjusted gross income” line, without taking into account any of the following amounts.

IRA deduction.

Student loan interest deduction.

Foreign earned income exclusion.

Foreign housing exclusion or deduction.

Exclusion of qualified savings bond interest shown on Form 8815.

Exclusion of employer-provided adoption benefits shown on Form 8839.

This is your modified AGI.

You have to add back the above items to figure out your Modified AGI.

TurboTax is programmed to calculate it automatically and determine your IRA deduction.