Spousal Roth contribution
We have a client that owns her own business and showed $20,000 income for 2010. She also made $14,000 SIMPLE contributions and $6,000 Roth contributions (she’s obviously over 50). They also made a $5,000 Roth contribution for her husband, who has no earned income and was expecting to claim spousal contribution. Did the contributions by the client eat up the husband’s ability to make a spousal Roth contribution since her contributions equal the earned income for her? Or, does the SIMPLE contribution not count in his abilities to make a contribution?
Thanks in advance for any input!
Scott
Permalink Submitted by Alan Spross on Sun, 2011-02-20 19:32
Net earnings of the business (line 4 of Sch E short form) does not reflect the SIMPLE contribution. But SE income for purposes of a TIRA or Roth IRA contribution requires reduction of that figure by the amount of SIMPLE IRA contributions for herself plus the deduction for 1/2 of her SE taxes.
Therefore, her own Roth contribution exhausts the full amount of taxable compensation available for both of them, and the spousal Roth contribution would be an excess contribution. Of course, they could opt to make the spousal Roth contribution in lieu of her own Roth contribution. But also note that the 1/2 of SE taxes could result in having to reduce that first 6k Roth distribution if you did not include it in your 20,000 figure.