We have a client who retired a few years ago. Since then he has not worked and his only income is pension income from his old employer,as well as Social Security income for he and his spouse. He is 65 years old and his spouse is 64. However, he has also been exercising non-qualified stock options each year since retirement. He would like to make a deductible IRA contribution so that he can reduce his 2015 MAGI for purposes of reducing the Medicare Part B premium surcharge for 2017. He has been told by his accountant that he can make a Deductible IRA contribution because of his exercising his non-qualified stock options. The accountants rationale is that “if Social Security defines a NQ stock option exercise as earned income subject to Social Security tax, the IRS should also”.

This seems to be a gray area and our in house tax desk does not agree with the client’s accountant. I wanted to confirm that the accountants interpretation of the tax law is correct.

Thanks in advance for your response.