Question

Excess contribution to Traditional IRA

Forum|Forum|1 year ago
April 9, 2025
1 reply
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Hello,

Hoping someone can help me finish my taxes, thank you in advance for your help.

From turbotax, it says that I can only deduct 6316 of my 7000 IRA contribution. I did not have enough earned income this year as I lost a job. How is this number calculated? Because of this, I now have a non-deductible excess contribution of 648. Is this the amount I should withdraw from investment company or do I need to calculate and add earnings to that before withdraw request? Now after that, how do I go about filling out a 1099R if I don’t receive it this year?

M

MAK70

You have a nondeductible contribution of 648, but it is NOT an excessive contribution that is subject to the additional penalty of 6%.

The amount of your contribution is limited to your compensation for the year minus a few adjustments.

So- you are not required to withdraw the $648, it just cannot be used as a deduction to reduce your taxable income. Because you cannot deduct it, it was not be taxed when you take a distribution in the future (it is your basis).

If you decide to keep it in your account, TurboTax will complete a form 8606 to report the nondeductible contribution to the IRS so that you are not taxed on it in the future.

Please let us know if you have other questions!

W

wilu0000Author

Thank you for your response. When I enter the contributed 7000, it still states that I have a penalty.

Because you made an excess contribution of $684 to your traditional IRA, you will owe a 6% penalty ($41) each year that excess money remains in the IRA.

How do I to get around this? Do I just continue?

D

DanaB27

Thank you for your response. I just have a quick question, on step 13, is this the contribution + earning (gross/total distribution) together?

You only need to enter the earnings. Only the earnings are taxable and will be entered on line 1 of Form 5329. Therefore, you only need to enter the earnings that will go on line 2 of Form 5329 with exception code 21.

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