Roth IRA Contribution eligibility
One of my clients is 69 (and married) and runs a small business from her home generating roughly $8500 taxable income on Schedule C. Their retirement/pension income brings them to about 200,000 AGI. Since she’s not an active participant, we have been doing $6500 deductible IRA contributions for her each year, however, she’ll turn 70.5 soon and we would like to do Roth contributions, but I’m not sure if the non-active participant rule allows her to avoid the phase-out with Roth contributions given their AGI is pretty high. If she can, can her spouse (who is retired & age 75) also make a Roth contribution on the remaining $2,000?
Thanks you!
Patrick
Permalink Submitted by Alan - IRA critic on Thu, 2016-02-11 16:05
Active participation is not a factor for Roth contributions, but modified AGI is. Roth contributions are phased out for MAGI between 184 and 194k and at 194k totally eliminated. Any Roth conversions which are included in AGI should be backed out, so client needs to be sure that the MAGI is correctly calculated. Any TIRA deduction must be added back. If a contribution is allowed a spousal contribution in the same amount is also allowed, but the total contributions cannot exceed the net income from SE less the deduction for SE taxes.
Permalink Submitted by Patrick McGinty on Thu, 2016-02-11 17:27
So if I understand you correctly, she can’t contribute to Roth if MAGI is over the phaseout range. non-active parcipant is completely unrelated? Pity! However, she would be eligible for a TIRA contribution, and even the spouse might be eligible even though he is age 70.5? My understanding is you can’t contribute to a TIRA after age 70.5, but thought I would confirm this. Do you now if non-deductible contributions are effected by the 70.5 rule?Sorry, three more questions inserted there. :)Thanks,Patrick
Permalink Submitted by Alan - IRA critic on Thu, 2016-02-11 18:49
Niether a deductible or a non deductible TIRA contribution can be made for any year that a taxpayer reaches 70.5 or later. Of course, if 70.5 is reached this year, a contribution can still be made for last year. All IRA contributions are limited by the amount of earned income. A Roth contribution is further limited by MAGI being too high, but is not limited by age or coverage by a workplace retirement plan. Sounds like the only IRA option here is probably a SEP IRA contribution based on her SE earnings. A SEP contribution does not have age limits.