IRA CONTRIBUTION LIMITS
RECEIVED A NOTICE FROM THE IRS THAT SPOUSES 2011 IRA DEDUCTION WAS DISALLOWED.
SPOUSE WORKED AS A PHYSICAL THERAPIST AT COMPANY X FOR SEVERAL YEARS. RESIGNED IN MARCH OF 2009.
WAS ASKED TO WORK FOR THEM AS A PRN IN AN EMERGENCY(THEY WERE SHORTHANDED). A PRN IS AN AS NEEDED EMPLOYEE
WITHOUT BENEFITS. DID A TWO HOUR JOB IN 2009. CLIENT DID NOT TAKE NOTICE THAT $8.00 WAS DEPOSITED INTO HER 401K, THE 401K WAS THERE FROM EARLIER EMPLOYMENT WITH LAST CONTRIBUTIONS IN MARCH OF 2009.
THIS CONTRIBUTION CHANGED THE VIEW OF THE IRS, AT LEAST INITIALLY, OF SPOUSES STATUS OF HAVING A RETIREMENT PLAN AT WORK. HER 2011 EMPLOYER DID NOT OFFER A RETIREMENT PLAN SO CLIENT CONTRIBUTED $4992 TO HER IRA. THE $8 CONTRIBUTION FROM THE 2 HOUR EMPLOYMENT PUT THE COUPLE OVER THE MAGI FOR 2011. NO ACTION HAS BEEN TAKEN, LOOKING FOR SUGGESTIONS. I HOPE THIS 2 HOUR STINT DOES NOT COST THE COUPLE THEIR 2011 IRA DEDUCTION.
THANKS
Permalink Submitted by Martin Helmer on Wed, 2013-10-30 17:21
Sounds like the answer is one you don’t want to hear—–the 2011 deduction is lost. I assume you meant to say the spouse came back for 2 hours in 2011, not 2009. At this point you probably want to fill out an 8606 for 2011 to treat the $4992 as nondeductible. Also ask for abatement of late filing penalty for this. At least spouse will get basis in the IRA.Depending on additional facts, there’s a chance the spouse should have been designated as active for 2012 instead. This would result if the $8 was a discretionary employer contribution physically made by the employer in 2012, even if it was for the 2011 plan year.