IRA Deduction with 401K Contributions

mrkenne
mrkenne Member Posts: 1 Newcomer
in Credits/Deductions

I contributed to both Traditional IRA and Self Employed 401K accounts for 2024. FreeTaxUSA factored in a deduction for both the IRA and 401K. After filing my 1040 I've received a notice from the IRS that you cannot take the IRA deduction if you've contributed to your 401K and MAGI is over a certain limit. IRS is now asking me to file Form 8606. Why isn't FreeTaxUSA calculating this correctly and how do I amend?

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  • MatthewD
    MatthewD FreeTaxUSA Team Posts: 587

    Hi Mrkenne,

    Thank you for bringing this to our attention! This has worked correctly in the software for 2023 and prior years, but obviously something went wrong for 2024.

    Yes, in situations like this, you will need to amend your return. In the software you will answer No to the question about deducting the IRA. When we fix the software, this will not be an issue.

    Just a little background when making contributions like you described. An SEP is considered an "employer sponsored plan," and you may be limited on deductions for contributions to a traditional IRA. See this IRS FAQ and IRS Publication 590-A.

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