I'm running into a tax situation for 2024 that I'm not able to wrap my head around and would appreciate if someone could help me understand what exactly is happening.
Backstory on my Question:
Illinois has a loophole where it doesn't tax retirement withdraws, so you can contribute to a traditional IRA and then convert to a Roth IRA. You deduct the Traditional contribution so the conversion zeros out federally and then you deduct the contribution on state taxes and save 4.95% because the conversion isn’t taxed. I’ve done this a few years now with no issues, but this year I had some unexpected income that pushed my spouse and my MAGI into the partially deduction range for Traditional IRA contributions.
Now that I have all of our interest, dividends and income estimated for the year I’ve been plugging it into FreeTaxUSA to get an idea of how our taxes will look and it’s telling me that our MAGI allows us to fully deduct the traditional IRA contribution.
Example of our 1040 for Married Filling Jointly:
Line 1 W-2 Income: $109,413
Line 2b/3b Interest/Dividends: $7,659
Line 4a IRA distributions (1099-r Box 7 code 2): $14,000
Line 9 Total Income: $131,072
Line 10 Adjustments (Trad IRA Contribution): $14,000
Line 11 AGI: $117,072
Question 1: Based on this I think our MAGI should be $131,072, (AGI + Traditional IRA contributions added back in) but FreeTaxUSA is saying that it is $117,072 and the IRA contribution is fully deductible. Am I missing something here?
I was curious if FreeTaxUSA just didn't calculate how much would be deductible, so I added an additional $14,000 to our dividends for the year and then the IRA contribution became partially deductible and it said our MAGI is $131,072. This confirms they do determine how much is deductible, but I would expect this "adjusted" MAGI to be $145,072.
Question 2: Assuming that FreeTaxUSA is wrong and our MAGI is actually $131,072 am I correct in thinking that the amount we will report on line 4a IRA distributions will only be the portion of our 2024 traditional IRA contributions that were deductible even if the 1099-rs show $14,000 total? (EX: If we can deduct $3,850 each line 4a would be $7,700 and line 10 would also be $7,700).
Backstory on my Question:
Illinois has a loophole where it doesn't tax retirement withdraws, so you can contribute to a traditional IRA and then convert to a Roth IRA. You deduct the Traditional contribution so the conversion zeros out federally and then you deduct the contribution on state taxes and save 4.95% because the conversion isn’t taxed. I’ve done this a few years now with no issues, but this year I had some unexpected income that pushed my spouse and my MAGI into the partially deduction range for Traditional IRA contributions.
Now that I have all of our interest, dividends and income estimated for the year I’ve been plugging it into FreeTaxUSA to get an idea of how our taxes will look and it’s telling me that our MAGI allows us to fully deduct the traditional IRA contribution.
Example of our 1040 for Married Filling Jointly:
Line 1 W-2 Income: $109,413
Line 2b/3b Interest/Dividends: $7,659
Line 4a IRA distributions (1099-r Box 7 code 2): $14,000
Line 9 Total Income: $131,072
Line 10 Adjustments (Trad IRA Contribution): $14,000
Line 11 AGI: $117,072
Question 1: Based on this I think our MAGI should be $131,072, (AGI + Traditional IRA contributions added back in) but FreeTaxUSA is saying that it is $117,072 and the IRA contribution is fully deductible. Am I missing something here?
I was curious if FreeTaxUSA just didn't calculate how much would be deductible, so I added an additional $14,000 to our dividends for the year and then the IRA contribution became partially deductible and it said our MAGI is $131,072. This confirms they do determine how much is deductible, but I would expect this "adjusted" MAGI to be $145,072.
Question 2: Assuming that FreeTaxUSA is wrong and our MAGI is actually $131,072 am I correct in thinking that the amount we will report on line 4a IRA distributions will only be the portion of our 2024 traditional IRA contributions that were deductible even if the 1099-rs show $14,000 total? (EX: If we can deduct $3,850 each line 4a would be $7,700 and line 10 would also be $7,700).
Statistics: Posted by BrBa1500 — Thu Dec 19, 2024 10:14 am — Replies 0 — Views 52