IRA contribution when retired

[ILLMAS]

TP and spouse contributed a small amount into an IRA, ATX is picking it up as non-deductible, however it's also reducing their taxable IRA amount by the contribution amount, my question is, instead of being an above the line deduction (normally for people who earn income), is that how it accounted for?  Reducing total taxable IRA less their 2018 contribution.

Thanks

[Christian]

If they are retired and have no earned income W-2 or self-employment how do they qualify to make an IRA contribution ? How does a contribution to the account reduce the account balance ? Maybe I am misreading the post.

[ILLMAS]

29 minutes ago, Christian said:

If they are retired and have no earned income W-2 or self-employment how do they qualify to make an IRA contribution ? How does a contribution to the account reduce the account balance ? Maybe I am misreading the post.

No earned income, no SE income, I am trying to figure why did they made a contribution in the first place. 

How does a contribution to the account reduce the account balance ?  Yes, for example, the couple contributed $1000, and their taxable IRA amount is $100,000, after I enter the $500+$500, their taxable IRA amount is $99,000.   That's the part I am trying to figure out.

[SaraEA]

The couple has to take those contributions out right now.  If they do so before the filing deadline it will be treated as if they never contributed.  I don't know what the software is doing, but sometimes software is quirky when trying to handle something that is not possible (like contributing to an IRA with no earned income).

[BulldogTom]

Sounds like the software is trying to correct the situation for the TP.   If TP contributed 1k, and withdrew 100k, the software is treating the first 1k as the return of the unallowed contribution.  

Tom
Modesto, CA

[Catherine]

22 minutes ago, BulldogTom said:

Sounds like the software is trying to correct the situation for the TP.   If TP contributed 1k, and withdrew 100k, the software is treating the first 1k as the return of the unallowed contribution.  

Tom
Modesto, CA

Tom has it right.  The software (and possibly the IRS will agree) that the $1K contributed is the first $1K of the $100K distributed.  Since the distribution was greater than the contribution, it will stand.  HOWEVER, the clients need to be scolded and told "BAD client! No biscuit!" with an admonishment not to do this again.

[Pacun]

I agree, if there is no W-2 or Schedule C on the return for either spouse, they shouldn't contribute to an IRA. Technically, you should ask them to take out those $1K and earnings before April 15 because they made a "not permitted transaction".