Non-Deductible IRA Contribution

Submitted by Elliot Kosoffsky on Sun, 2017-01-15 15:17

Facts:

Husband’s has $53,000 (annual limit in 2016) of combined employer defined contribution, profit sharing and 401(k) plan contributions (i.e. 3 separate employer sponsored qualified plans). Husband also has self-employment income and also makes contribution in 2016 to his own SEP IRA. Wife is not employed, has no wages or active income.

Question: Can husband and wife each make 2016 non-deductible TIRA contributions to each of their IRA’s for 2016 to build up basis in these accounts? Form 8606 will be filed with IRS to track basis.



Submitted by William Tuttle on Sun, 2017-01-15 17:43

  • Non-deductible traditional IRA contributions are never restricted by being an active particpant in an employer retirement plan and your MAGI . Only the deduction is reduced/elimited by those circumstances. You do have to have a minimum of taxable compensation to make any IRA contribution. This would be the total of both of your W-2 Box 1 amounts and (net self-employment income (net business profit – 1/2 SE tax) – employer contribution. This minimum would be $11,000 for the both of you + $1,000 additional for each of you >= 50.
  • Your husband is not likely limited to $53,000 across all three employer sponsored plans. If one of those plans is a 457b, it has its own contribution space. If one of those plans is a 403b, it is considered a plan of the participant and not the employer for annual limit purposes. This means the 403b annual limit is actually shared with the SEP IRA contributions and not any other employer plans. Only other employer plans would be subject together to their own annual limit.

Submitted by Elliot Kosoffsky on Mon, 2017-01-16 01:32

Yes.  Husband’s W-2 compensdation was in excess of $500,000.  Self-Employment Income was apporx. $100,000.  None of the employer plans were 457b.  The three (3) employer qualified plans were (A) 401(k) (B) Defined Contribution and (C) Profit Sharing.  Husband is 57 years old.  Wide is 60 years old.  Looks like the non-deductible $6,500 contribution for each husband and wife ($6,500 x 2) in their TIRA accounts are okay.  Would you agree?  

Submitted by William Tuttle on Mon, 2017-01-16 02:42

The full non-deductible contributions are OK. The three employer plans do look like they would be subject to just one annual limit.

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