IRA Roth contribution, income received crossed plan years
Good day. A client retired in 2022 and received additional 2022 income from the previous employer in 2023. Can that income be used towards the max Roth contribution in 2022 or 2023? Best, CS
Good day. A client retired in 2022 and received additional 2022 income from the previous employer in 2023. Can that income be used towards the max Roth contribution in 2022 or 2023? Best, CS
Permalink Submitted by Alan - IRA critic on Fri, 2023-04-14 14:48
2022 W-2 income can only be used for the 2022 contribution, but additional income to be reported on a 2023 W-2 from that employer can only be used for a 2023 contribution.
Permalink Submitted by BruceM on Fri, 2023-04-14 17:54
Alan If the employee were paid a bonus for 2022, but the bonus could not be determined and thus not paid until 2023, even though the employee left (retired) in, say, November of 2022, would that bonus amount be reported on the 2023 tax return because it was actually received in 2023? If so, could the bonus be used as the earned income basis for a 2023 Roth contribution or is the bonus considered 2022 earned income for IRA purposes, regardless of what year it is actually received and taxed as income?
Permalink Submitted by Alan - IRA critic on Fri, 2023-04-14 19:34
A bonus is taxable in the year it is paid regardless of the year for which it was earned. Accordingly, it would be reported on a 2023 W-2 and serve as taxable compensation for 2023 IRA contribution purposes.