SEP, ROTH & Traditional in same year
Hi,
A prospective client came to me who did her own taxes. She made $85,665 in self-employed income. She contributed $22,000 to her SEP. Max I calculate she could do was $15,923. She and her husband both converted traditional IRA’s of $56,924 and $69,748 respectively into Roth IRA’s. It appears she also did a traditional IRA contribution of $7,000 and her husband did $7,000 to a Roth. AGI was $290,000. I’m trying to explain to her that she will need to fix the excess contributions but frankly not sure by what amount based on so many issues. Any advice would be appreciated.
Permalink Submitted by Alan - IRA critic on Wed, 2021-10-06 23:50
Apparently, these contributions were for 2020, and whatever tax program she used should have calculated her max SEP contribution and also their joint MAGI for both Roth and deductible TIRA contributions. Conversions to Roth are subtracted from AGI, so it is very possible that husband’s Roth contribution is allowable, as the contribution begins to be phased out at 196,000 MAGI. The deadline to remove any excess SEP contribution is 10/15 to avoid a 10% excise tax. Only 9 days left for that. Her TIRA contribution is likely not deductible as SEP contributions made in 2020 subjects her to the lower MAGI for the deduction as a retirement plan participant. If her TIRA Contribution is not deductible, she should recharacterize it as a Roth contribution by 10/15 if they either filed their 2020 return by the due date or filed a timely extension. They might have to go to a tax preparer to determine where they stand since the deadline to correct any contribution errors conveniently is only 9 days away.