IRA contribution eligibility
I have a client who started a business mid-way through 2024. For the first half of 2024, he had $ 33,690 of W2 wages but took a loss on his business of $ 88,837. He had an unemployment benefit of $ 26,858. His AGI for 2024 was $ -28,289. I know you need earned income to contribute to an IRA. He had W2 wages but a negative income. I haven’t seen this before. He contributed 7K to his TIRA. Is he eligible for these contributions or do they need to be removed?
Permalink Submitted by Alan - IRA critic on Tue, 2025-02-25 14:16
A self employment loss can be disregarded for IRA contribution purposes if there is W-2 income and a contribution can be made using the W 2 income. However, with no taxable income (assuming no spouse with taxable income) this should be a Roth IRA contribution and should be recharacterized as a Roth contribution since the IRA deduction will be worthless. Perhaps he should also have done a Roth conversion in 2024, but too late for that now.
Permalink Submitted by Robert Roselli on Tue, 2025-02-25 14:31
When I set up the TIRA in April 2023, he had a union job earning $ 98/hour. His income was projected to be over the limit for both a deductible IRA or Roth IRA contribution so I set up the non-deductible IRA. I realized I could have converted to a Roth IRA last year. Is there any reason why I can’t do that now? He’s made $ 12,545 in contributions and his account is worth $ 14,266. Wouldn’t it just be a taxable event for $ 1,721?
Permalink Submitted by Alan - IRA critic on Tue, 2025-02-25 14:46
Yes, if all his IRAs are currently worth 14,266 and 12,545 is his IRA basis from non deductible contributions, he could convert now with 1721 taxable. No need to recharacterize the 2024 contribution as Roth in this situation.