Age 70.5 & self employment > SIMPLE IRA start

Submitted by Alan Drake m on Fri, 2024-02-02 19:06

Last week was my 70 1/2th birthday, which is not the trigger date it once was. But one trigger remains for the year I turn 70.5 – any deductible Traditional IRA contributions I make this year cannot be used to fund QCDs as RMDs. And this is on a FIFO basis (I have to pay taxes on the first $ out of my IRA, even QCDs, although if I itemize (I don’t) I can use the charitable deduction).

However, I also have a SIMPLE IRA. I can transfer funds from my Traditional IRA and SEP IRA into my SIMPLE IRA.

My understanding is that SIMPLE & SEP IRAs are not subject to the same QCD tax free distribution rule that Traditional IRAs (before age 70.5) are. Can I just “back door” transfer my Traditional IRA contributions this year & later years, and make non-taxable QCDs from my SIMPLE IRA ? (In years that the SIMPLE IRA is not active).

A related question.

I am self employed with a few thousand $ self employed income every year. Can I contribute 103% of my self employed income to a SIMPLE IRA or is the limit 1.03 x (1 -0.0765) of my income ? Up to a $19,500 limit on income.

And can I contribute any excess self employed income over $19,500 to a Roth IRA (up to $8,000) ? (Not expected but possible)

Thanks



Submitted by Alan - IRA critic on Sat, 2024-02-03 03:46

  • If you make a deductible TIRA contribution from now on it will trigger the QCD anti abuse rule regardless of whether you make the QCD from your TIRA or SIMPLE IRA that is not “on going”. Therefore, you might fully fund your SIMPLE IRA and Roth IRA and not make any TIRA contributions. If your income is too high for a Roth IRA contribution, you could make a non deductible TIRA contribution, but that would trigger pro rating from here on for all your IRA distributions and you might not want to bother with Form 8606 for the duration. The idea of making a TIRA contribution and transfering it to your SIMPLE IRA would not produce any form of advantage relative to the anti abuse rule. 
  • For 2024 your SIMPLE IRA employee contribution limit is the lesser of 100% of your net earnings from SE less 50% of SE tax or the SIMPLE IRA contribution limit with catchup of 21,450 (17,600 plus 3,850 catch up). The employer contribution limit depends on what your SIMPLE IRA adoption agreement specifies and is in addition to the employee contribution limits.
  • You cannot use the same SE income used to fund your SIMPLE IRA to make Roth IRA contributions. 

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