Employer contributed to IRA

[Gretel]

I have this weird situation that an employer contributed IRA funds to his employee (my client). It's a regular IRA not a SEP. I assume the contribution is considered a gift (employer is not my client and he should have run through payroll) to my client and he can claim the deduction?

[ChEAr$]

I have this weird situation that an employer contributed IRA funds to his employee (my client). It's a regular IRA not a SEP. I assume the contribution is considered a gift (employer is not my client and he should have run through payroll) to my client and he can claim the deduction?

Not a gift, but compensation, so added to payroll.
subject to all tax withholdings.

[Burke]

Agree. Due to the relationship, it cannot be considered a gift. It is compensation. If he does that, then he can claim an IRA deduction if he otherwise qualifies.

[Gretel]

I hear you. This was going on for years and only in 2010 did my client start to contribute from his own funds. So, he actually owes his part of SS/Med. taxes on this contribution. I knew it sounded to good to be true!

[JG EA]

On one of the IRS retirement brochures they have as a retirement plan to contribute the taxpayer's money into an IRA for them. Or course it would be after-tax and it would just be a convenience like putting someone's money into a savings account. I only mention it as a possibility, but yours sounds different from this "plan".

[Gretel]

Thanks, JG. Now, in 2010, employer did it the way you described, which brought up the whole story. All T/P said was that employer started IRA plan and then I get a statement with FMV of almost $30,000. Since making that much money in one year wasn't an option I started digging.