Former self employed insurance agent’s renewal commissions
Former self employed insurance agent continues to receive renewal commissions for sales made in years prior to retirement. The renewal commissions are reported as self employment income on Schedule C subject to self employment tax. Would the renewal commissions meet the definition of “compensation” for the purpose of being eligible to make IRA contributions each year (assume under age 70 1/2)?
Permalink Submitted by Alan - IRA critic on Tue, 2016-09-20 22:41
Yes, this is eligible self employment income for an IRA contribution.
Permalink Submitted by Jagates on Wed, 2016-09-21 21:13
Do you think that it might be possible that the renewal commissions paid to the retired insurance agent could be deemed to be “deferred compensation” and thereby excluded from the definition of compensation for purposes of determining the current year IRA contribution under Sec 219(f)(1)?
Permalink Submitted by Alan - IRA critic on Wed, 2016-09-21 22:31
No. Deferred comp refers to income deferred into retirement plans. For employees that money shows in Box 11 of their W2 and is excluded from taxable comp for IRA contribution purposes. These commissions are paid directly and are taxable in the year paid and not deferred into a plan.
Permalink Submitted by Jagates on Thu, 2016-09-22 17:21
Thank you for your comments. Seems clear when its an employee. Still trying to get my arms around what is meant by “deferred compensation” in the context of an independent contractor (IC). When the retired IC agent receives a current year renewal payment, it appears that the compensation is for services performed in a prior, pre-retirement year. I have been trying to determine if this type of payment meets the definition of “deferred compensation” as it is used in Sec 219. In my seach for a definition, I noticed a couple items which raised a question in my mind. In PLR 8251113, there is a comment that “A deduction for an IRA is only available with respect in compensation for services actually rendered in the year for which the deduction is claimed”. In IRS Pub 590A, “Deferred Compensation received (compensation payments postponed from a past year)” is listed as not being compensation for purposes of making a current year IRA contribution. Will continue my search for the definition but want to say, once again, that I appreciate your thoughts on this issue and the value of this discussion forum..
Permalink Submitted by [email protected] on Thu, 2016-09-22 13:38
What about deferred comp that is paid post retirement to someone that is a 1099 contractor? Can that be used to fund a retirement plan, such as a solo 401k or SEP IRA?