May someone under age 50 with salary of $16,000 defer $12,500 to SIMPLE IRA and contribute $5,500 to an IRA in 2015?

Submitted by Eric H Silverman on Sun, 2015-03-29 23:05

1. Joe is a common law employee age 45 of a company that has a SIMPLE IRA. His salary in 2015 is $16,000. He makes the maximum deferral of $12,500 to the SIMPLE IRA. Is he permitted to contribute $5,500 to an IRA, for a maximum total deferral and contribution of $12,500 + $5,500 = $18,000, which exceeds his salary of $16,000?

The instructions for Form W-2 state that “Elective deferrals to a section 401(k) cash or deferred arrangement. Also includes deferrals under a SIMPLE retirement account that is part of a section 401(k) arrangement.” go in box 12D. Aren’t SIMPLE IRAs under section 408(p), rather than section 401(k)?

I think the answer is, “No,” because the number in box 1 of Joe’s W-2 is $3,500, which is equal to Joe’s salary, reduced by his SIMPLE IRA deferral of $12,500, which appears in box 12D. Joe’s maximum IRA contribution is $3,500. Is this correct?

2. Suppose that Joe is an owner-employee and self-employed person, rather than a connon law employee, but that the numbers are the same. He does not get a W-2. Is the result thesame, i.e. that Joe’s maximum IRA contribution is $3,500?

3. and 4. Are the answers the same if the employer-sponsored plan is a 401(k) plan, rather than a SIMPLE IRA?

5. Where does the Internal Revenue Code or Regulations provide thatcompensation for the purpose of the maximum IRA contribution is reduced by elective deferrals to a 401(k) plan, 403(b) plan, SIMPLE IRA, etc?

Comment and Question: Being able to put MORE than one’s salary or income from self-employment into retirement plans seems too good to be true. Is it permitted? Thanks in advance.



Submitted by Alan - IRA critic on Mon, 2015-03-30 04:23

  • 1) Box 1 of the W-2 would be 3,500 and that would be the maximum IRA contribution allowed unless he has other taxable comp.
  • D is the code for elective deferrals (eg 401k or SIMPLE 401k which is rare). S is the code for a SIMPLE IRA salary reduction contributions. But if you have a SIMPLE 401k Code D, the IRA max contribution is the same.
  • If self employed instead, the non SIMPLE IRA contribution is based on the net income from SE less amounts contributed to the SIMPLE IRA, so basically the same result.
  • See Pub 590 A, p 7 for definition of SE income for IRA contribution purposes
  • Putting more in than earned cannot be done with a SIMPLE IRA, but can be done with a 401k with a designated Roth option, since Roth 401k contributions do NOT reduce Box 1 of the W-2. Therefore, Box 1 income can be used for a TIRA or Roth IRA contribution using the same income.

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