Guidance on if a SIMPLE contribution will net out earned income for Roth contributions
I was wondering if somebody would be able to give some guidance on the below fact pattern. Husband is 71 and spouse is 65, married filing jointly, and the husband is the only one who works in the household and has $17,000 of earned income for the year. He intends to max out his SIMPLE IRA contribution of $15,500 for the year. I am wondering if they would still be able to max out his Roth IRA and her spousal Roth IRA or if they can only make a partial Roth IRA contribution for the year?
Permalink Submitted by David Mertz on Thu, 2016-12-08 17:45
Eligible compensation for making Roth IRA contributions is reduced by the amount of elective deferrals to the SIMPLE IRA. With $17,000 of earned income of which $15,500 is deferred to the SIMPLE IRA, only $1,500 of eligible compensation would remain available to be split between his and his spouse’s Roth IRA contributions.
Permalink Submitted by William Tuttle on Thu, 2016-12-08 18:16
If he is and switches to a solo 401k for next year, he could do the following on $17,000 in taxable compensation. $17,000 Roth 401k deferral, $6,500 Roth IRA contribution, $6,500 Spousal Roth IRA contribution. This is because, pre-tax employee deferrals such as the SIMPLE IRA reduce taxable compensation. Roth deferrals do not, leaving the full amount vailable for IRAs.