SIMPLE-IRA and Regular IRA limits

Submitted by Robert Makin on Thu, 2020-01-16 16:04

Trying to determine what limits apply to a taxpayer with both a SIMPLE-IRA and a regular, nondeductible IRA. IRS publications state that contribution limits are applied separately, but I have a fact pattern that does not seem logical if I follow IRS guidance as I understand it:

Self-employed wife with $20,000 net SE income.
Retired husband.
Wife contributes $15,000 to her SIMPLE-IRA and $7,000 to her nondeductible IRA. Both then converted to her Roth IRA.
Husband contributes $7,000 to his spousal, nondeductible IRA, then converts to his Roth IRA.

Combined IRA contributions don’t exceed wife’s net SE taxable income, so IRA limits are met.
SIMPLE-IRA contribution meets employee limit and employer 3% match requirement.

What’s wrong with this picture?

Thanks!



Submitted by Alan - IRA critic on Thu, 2020-01-16 17:16

  • Taxable comp for IRA contributions for a SE person is the net SE income reduced by the SE tax deduction AND the deduction made to retirement plans for the wife (the SIMPLE IRA contribution). Therefore, the taxable comp remaining for IRA contributions is 5,000 less the SE deduction. It does not matter if the TIRA contributions are deductible or not, and that produces an excess TIRA contribution of over 9000 apportioned in any manner between the spouse’s IRA accounts. Further, since Roth conversions can no longer be recharacterized back to TIRA, the excess is treated as excess regular Roth IRA contributions and must be removed in the usual manner with applicable earnings.  SInce 9000 is greater than either TIRA contribution, both spouse’s Roth IRA accounts will need to have excess amounts returned for a total of 9000 +. 
  • The correction is not costly in current taxes, but is a huge reporting hassle since Roth conversions can no longer be recharacterized. 
  • What triggered this question, tax program entry issues?

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