Deductible IRAs?
Clients will have income of $400,000 married filing jointly.
No retirement plans for either client. Normally, they would be able to deduct IRA contributions. However, one spouse just signed up for SIMPLE IRA. He will only be eligible for 5 weeks in the SIMPLE IRA, so will not be able to utilize the the full contribution amount for the SIMPLE IRA (16K for example).
I am assuming there’s no pro rata calculation for IRA deductibility based on him only being eligible for 5 weeks in the SIMPLE IRA.
Could he potentially write a check to his SIMPLE IRA? I know it’s typically completed through payroll and shows up as a deduction from w2 wages, but I wanted to ask if this is even a possibility?
Permalink Submitted by Alan - IRA critic on Thu, 2024-11-21 11:59
If a taxpayer is covered by a workplace retirement plan including a SIMPLE IRA for a single day, they are treated as covered and the retirement plan (box 13) on their W-2 will be checked. Further, if only one spouse is treated as covered, there is a limit (143k) over which neither spouse can make a deductible IRA contribution.
That said, the employer should not check the retirement plan box unless the spouse actually makes a SIMPLE IRA contribution in 2024. Being eligible for the SIMPLE but not contributing in 2024 would therefore still allow both spouses to deduct their TIRA contribution, therefore perhaps the spouse should elect not to contribute until January.
He cannot bypass salary reductions by writing his own contribution check to the SIMPLE IRA because all contributions must be made by the employer and reported as SIMPLE IRA contributions on the W-2.
If the non covered spouse has no TIRA, SEP, or SIMPLE IRA balance, that spouse could make a non deductible IRA contribution and convert it to Roth tax free (aka back door Roth) even if the other spouse makes SIMPLE contributions. The covered spouse could also make the ND contribution, but their conversion would be pro rated with pre tax SIMPLE IRA contributions made by the end of the year and any other non Roth IRA balance that spouse has.
Therefore, if the largest possible deduction is the key it looks like not contributing to the SIMPLE IRA until 2025 would be beneficial.