IRA contribution allowed based on 1099-NEC income?

Submitted by Be Hwong on Sun, 2022-11-20 02:15

Husband makes $15,000 from teaching and receives a 1099-NEC income report. Does this income allow a Roth IRA or IRA contribution? And, as his wife, may I make a Roth IRA or IRA contribution based on this income, if he elects not to? We are both over age 70 and have no W-2 income. Since we are 50 or older, is the maximum allowable contribution $7,000 for 2022?



Submitted by Alan - IRA critic on Sun, 2022-11-20 03:31

This is self employment income and should be reported on Sch C to determine the net earnings from SE. That figure less 1/2 the SE tax would be eligible for IRA contributions and spousal contributions subject to the usual limits for such contributions. Neither of you should consider a deductible TIRA contribution if you plan to do any QCDs, as the amount deducted would reduce the amount you could claim as a QCD. Roth or ND contributions would not result in the QCD reduction.

Submitted by Be Hwong on Tue, 2022-11-22 16:15

Thank you for pointing out the advantages of doing a Roth IRA over TIRA, but only by meeting the other conditions of the Roth.  Didn’t realize the impact on the QCD for the TIRA.  Exactly why this discussion group is so useful.

Submitted by William Tuttle on Sun, 2022-11-20 15:51

  • As pointed out by Alan. The self-employed earned income = business profits – SE tax. He can make an IRA contribution and you can make a spousal IRA contribution up to this amount combined.
  • He could adopt a one-participant 401k and make Roth 401k employee deferrals up to the lesser of the self-employed earned income and the employee deferral limit (2022 = $20.5K)
  • A self-employed health insurance deduction can be taken for both of your Medicare Part B/D premiums, Medicare Supplement premiums, Dental insurance premiums, etc.
  • If your taxable income makes you eligible, you could claim (self-employed earned income – self-employed health insurance deduction) in a QBI deduction.
  • To my knowledge it is the only place in the tax code where you can triple-dip (Roth 401k, combined IRAs and (self-employed health insurance deduction + QBI deduction combined).
  • A little bit of self-employed earned income comes in retirement is very beneficial.

Submitted by Be Hwong on Tue, 2022-11-22 16:22

Thank you for pointing out the additional possible benefits of using the income for IRAs or even a 401k.  Since our healthcare premiums are covered partially by his former employer, do we deduct only a percentage of uncovered premiums, in proportion to the amount of income his 1099-NEC represents against all income?

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