Why is TurboTax is telling me my "IRA contribution Isn't Permitted" while I entered income way over the contribution?

[TheBardog]

The alert says "You IRA Contribution Isn't Permitted. You're not permitted to contribute more than the amount of your earned income."

Ok, but my earned income is way over the contribution amount.

[macuser_22]

What type of IRA?   Roth contributions can be limited because of high AGI.

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

For 2019, $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

[TheBardog]

Hi Macuser_22

its a SEP IRA

What I noticed is that SEP contributions amount is asked in the Self Employment Retirement section under Income & Expenses as well as Deductions & Credits.

Why am I getting the message that my earned income was zero?

[macuser_22]

Where are you entering it?   A SEP is an employee plan and not an regular IRA and does not get entered in the IRA contribution section, it is entered on an employees W-2 form - nowhere else, but of a self employed plan then it is entered on Schedule  C under "Business income and expenses, self-employed retirement".

[TheBardog]

Ok, now this is beginning to make some sense. I entered it under the Income and Expenses section but then there's also a section under Deductions & Credit, "Traditional & Roth IRA Contribution" where I entered the 6000. Before I entered it I looked up whether a SEP was a traditional IRA and what I read said it was... seeing now that that was incorrect.  

So to be clear, in the section "Traditional & Roth IRA Contribution" under the Deductions & Credits section, I leave that blank. 

The next page where SEP is mentioned is the Retirement Deductions Results which includes the 6000 but then adds an additional dollar value "Amount to be Contributed by Plan Due Date".. there is a total retirements contributions of the 6000 and then Amount deductible. Does this sound correct?

[macuser_22 · Accepted solution]

"there's also a section under Deductions & Credit, "Traditional & Roth IRA Contribution" where I entered the 6000"

A SEP is NOT an Traditional IRA and does NOT get entered under the "Traditional & Roth IRA Contribution"  section.

A SEP is a A "Simplified Employee Pension" and not a personal IRA.

[mcravey1]

I am getting the same error message, that I'm not allowed to contribute to a Traditional IRA because my earned income is zero?  My W-2 wages are in excess of $50k and I have never had this issue before using TurboTax.  What's up?  Help.

[BillM223]

So, are you trying to enter an IRA contribution or an SEP-IRA contribution (as most the posts above refer to)?

And where are you entering this contribution?

Do you have a retirement plan at work? Does your spouse? What is your adjusted gross income?

[mcravey1]

I talked with the experts via phone and they were able to identify that this is a bogus error message.  I have large earned income (no SEP-IRA plan) and retired last year.  The desktop program still highlights that there is an error and that I can't make an IRA contribution and must declare excess contributions, but reviewing the forms, everything is handled and reported properly.