Income limit on IRA contribution
Employee earns $18,000 gross wage, contributes $16,500 as traditional deductible 401k, ends up with $1,500 in Box 1 of W-2
I’m pretty sure (per Pub 590) that the maximum TIRA contribution the employee can make is $1,500 (references Box 1 amount as “compensation”).
But what if the employee makes the $16,500 contribution as a Roth 401k (doesn’t reduce W-2 Box 1), could he also make a $5,000 Roth IRA contribution?
Thanks
Permalink Submitted by Alan Spross on Wed, 2010-05-05 21:52
Logic suggests that the taxpayer might be limited to 1,500 for the IRA contribution when making a Roth 401k contribution since an IRA contribution over 1,500 would result in use of the same earnings for two different retirement plan contributions. However, this logic is trumped by the fact that the designated Roth contribution is after tax, leaving more “taxable compensation” in Box 1.
Accordingly, the employee can still make a full traditional or Roth IRA contribution using the safe harbor provision of Box 1 less Box 11 per p 8 of Pub 590.