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TurboTax SEP IRA Help Please

1,014 Views | 8 Replies | Last: 3 yr ago by 30wedge
jakester03
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AG
Howdy,

I'm working in TurboTax Home and Business. I am a full time employee, but my wife and I also own our own side business LLC.

We both have Traditional and Roth IRAs. I max out my Roth and her Traditional.

This year we added a SEP IRA for both of us to achieve more tax savings.

In TurboTax I am entering our SEP contributions in the Business portion. Whenever I enter MY contributions, the Federal Tax Due goes down as I would expect.

However, when I enter HER contributions, the Federal Tax Due goes up. I cannot figure out why. Note that I did go back and do this AFTER I input her Traditional IRA contribution under the Personal section.

Any advice would be much appreciated.

Thanks and Gig Em!
Big04
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AG
Are you treating the LLC as disregarded (filing a Schedule C)? It's probably only linked to your SSN. You will need to file two schedule Cs and split the amounts 50/50 so she has self employment income as well.
jakester03
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AG
Big04 said:

Are you treating the LLC as disregarded (filing a Schedule C)? It's probably only linked to your SSN. You will need to file two schedule Cs and split the amounts 50/50 so she has self employment income as well.

I am filing two schedule Cs with the income and expenses split 50/50 so that we are treated as a QJV.
jakester03
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AG
After doing some more digging it does appear that it is considering the SEP IRA contribution as employee contribution and not employer contribution, thus exceeding the limit.

Any ideas how I can designate the SEP IRA contribution as employer?
Big04
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AG
That's odd. A sep ira is employer only. There is no employee contribution. I'm not familiar with turbo tax so I'm not sure why it's calculating it like that.
jakester03
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AG
I went through and cleared both screens and then did the Business portion first before the personal. Now when I enter her Traditional IRA in the personal section I get this:

Her modified adjusted gross income (MAGI) is <redacted>, which puts her over the limit for IRA deductions. To deduct a contribution, you can't have a MAGI of over $123,000 while being covered under a retirement plan at work. Learn More.

The Learn More says this:

Nondeductible IRA Contributions

If you (or your spouse) are covered by a retirement plan at work, and your modified adjusted gross income (AGI) is above a certain amount, then you can't deduct part or all of your contribution.

Modified adjusted gross income limits

You can deduct only part of your contribution if your modified AGI is:

- Between $103,000 and $123,000, and you're married filing jointly or a qualifying widow(er)

- Less than $10,000, and you're married filing separately and lived together

- Between $64,000 and $74,000, and you're single or head of household

You can't deduct any of your contribution if your modified AGI is:

- $123,000 or more, and you're married filing jointly or a qualifying widow(er)

- $10,000 or more, and you're married filing separately and lived together

- $74,000 or more, and you're single or head of household

The limits are higher if you are married filing jointly and you are not covered by a retirement plan at work, but your spouse is covered.

How can I tell if I'm covered by a retirement plan at work?

Look at box 13 on your W-2. You're considered to be covered if the Retirement Plan box is checked.

You are also considered to be covered if you are self-employed and have contributed to a SEP, SIMPLE, Keogh, or individual 401(k) plan.

Even if you worked for an employer and were covered by a retirement plan for only a short time during the year, it still counts as being covered the whole year.

Depending on the type of retirement plan your employer offers, if you chose not to participate in the retirement plan, you might be still considered as being covered by a retirement plan at work.

What happens if I have a nondeductible contribution?

You won't pay a penalty. You just won't get a deduction on your tax return this year.

We fill in Form 8606 (Nondeductible IRAs) for you and automatically include it in your return. Form 8606 shows your IRA basis, which starts with your nondeductible contributions.

When you eventually retire and take a distribution from your IRA, we'll ask for your IRA basis. Use the information from your most recent Form 8606 to tell us about your IRA basis. This way, you won't pay tax on that portion of your distribution (since you didn't get a tax deduction on it when you contributed the money).
Big04
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AG
Do you have a retirement plan at your full time job? If so her traditional ira won't be deductible but the sep will be deductible.

Sounds like your income is too high for her to deduct an ira if you have a retirement plan at your full time job
jakester03
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AG
Big04 said:

Do you have a retirement plan at your full time job? If so her traditional ira won't be deductible but the sep will be deductible.

Sounds like your income is too high for her to deduct an ira if you have a retirement plan at your full time job

I do have a retirement plan at my full time job, so I know that a contribution to a Traditional IRA would not be deductible for me.

Oddly enough, it will allow ME to deduct a SEP IRA contribution because I am not contributing to a Traditional IRA. Go figure.
Big04
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AG
Since you have a retirement plan at work and your joint income is over the threshold your spouses ira is not deductible either. Probably better off doing a back door roth for her.
30wedge
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jakester03 said:

Big04 said:

Do you have a retirement plan at your full time job? If so her traditional ira won't be deductible but the sep will be deductible.

Sounds like your income is too high for her to deduct an ira if you have a retirement plan at your full time job

I do have a retirement plan at my full time job, so I know that a contribution to a Traditional IRA would not be deductible for me.

Oddly enough, it will allow ME to deduct a SEP IRA contribution because I am not contributing to a Traditional IRA. Go figure.
The SEP-IRA is a different animal than an IRA. The SEP-IRA should not be impacted by whether or not you have a traditional IRA. You would have your retirement plan at work, a deductible SEP-IRA (based on your Schedule C), and an IRA which may or may not be deductible (sounds like for you it won't be). As I understand it, your wife has no retirement plan at work, so she will have an SEP-IRA (based on her Schedule C) and an IRA which may or may not be deductible. If she has no pension coverage at work, the threshold as to whether HER IRA is deductible is much higher than for you (since you do have pension coverage).

Also, I assume you have no employees for the Schedule C stuff, nor people you treat as independent contactors but who are actually employees such that you do not have to fund an SEP-IRA for them.
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