Catchup Contributions Where Employer is in Bankruptcy
A tax client is a former Enron employee. She gave me a letter explaining that under PPA 2006 a former Enron employee may be able to make additional IRA contributions for 2007, 2008 and 2009. After reading the letter and Sec. 831 of PPA 2006, it appears that only individuals who can [u][b]d[/b][b]educt[/b][/u] their IRA contributions on their 1040s are eligible to make the extra contributions (and, if over age 50, are not eligible for the catchup in addition to the 50+ catchup.) Can anyone confirm my understanding, or explain the provision if I am mistaken.
Thanks.
Sherry
Permalink Submitted by Alan Spross on Sun, 2008-02-03 00:20
Sherry,
The catchup contributions under PPA Sec 831 are allowed whether deductible or not. The code is a real mess and it is easy to see where you came to this conclusion.
It all relates back to the original code wording prior to 1987 when ALL TIRA contributions were deductible. Therefore, the contribution limit was defined according to how much was deductible. The 1986 tax legislation which introduced employer plan participation levels to restrict TIRA deductions, however retained the prior format and simply added 219(g) to define the limitation to the deduction, and 219(f)7 to allow non deductible contributions in excess of the restricted amount per 219(g). The election is authorized in 408(0)(2) per link below:
http://www.fourmilab.ch/ustax/www/t26-A-1-D-I-A-408.html#_o__2__B__ii_.
It is cumbersome and confusing, but was easier to just keep adding than to go back and include everything in Sec 408.
If client uses the PPA catchup, they cannot also use the over 50 catchup provision. Their catchup options are either one but not both.