401k and Roth IRA contributions
I have a client that is 61 and retiring this year. He will receive a final paycheck of about $10,000 in January, 2019 for accrued vacation time. The $10,000 payment will be his only income in 2019. He’s asked his employer to contribute the entire check amount (ex. SSI taxes) into his 401k. Can he also contribute $7000 to his Roth IRA in 2019?
Thanks,
John
Permalink Submitted by Alan - IRA critic on Wed, 2018-11-21 19:57
No. His 2019 W-2 Box 1 will only show the SS taxes as taxable wages. His IRA contribution will be limited to that small amount because of his pre tax 401k contribution, However, if his plan includes a Roth 401k he could have had the contribution made to his Roth 401k and that would not reduce the Box 1 amount on his W-2. Not only that, if his taxable income for 2019 will be low, he should be making Roth contributions anyway. Perhaps he can still change that 2019 contribution to his Roth 401k if the plan includes a Roth account. In other words, the same income can be used for a Roth 401k contribution and a Roth IRA contribution.