Maximum contribution allowed ?

[dktax]

Potential new client (Over 50) has simple IRA plan in place and would like to make the maximum contribution allowed. His current preparer tells him that he can contribute $6000 to a traditional IRA, his wife can contribute $6000 to her IRA and they can also take the maximum $14000 for the simple plan. Net SE earnings of approx $25000. That does not sound right to me. If he contributes the $14,000 to his simple, is he also eligible to contribute to a traditional IRA? What do you all think? They just cashed out of the stock market so are looking for a place for the funds.

[Gretel]

I think just generally speaking the annual contribution limit for all plans is $49,000 (defined contribution plans).

The real questions probably is their total AGI and if they are under the limits for being allowed to contribute the max amounts to their IRA's.

[taxmom34]

i think i saw this same situation on turbo tax community live last night.

[dktax]

spouse was covered by retirement plan in 2010 prior to retiring. Their AGI is less than $89000.

[New York Enrolled Agent]

spouse was covered by retirement plan in 2010 prior to retiring. Their AGI is less than $89000.

I'm not sure how much of that is relevant. Taxpayers can fund an IRA provided they have adequate compensation. (Deductibility of the contributions is a separate issue)

Based on your second post, I infer the wife has compensation of her own so she can fund an IRA.

Your taxpayer husband has income of $25K. He put $14K into his SIMPLE. Thus he has "leftover" compensation of $11K which is sufficient to fund his IRA. If the wife had no compensation of her own, then each could only do an IRA of $5,500 (assuming they do an equal split).

[dktax]

I was not concerned about the deductibility issue. What I am wondering is if you can contribute to both a simple and a traditional for the same tax year for the same taxpayer?

[Gretel]

spouse was covered by retirement plan in 2010 prior to retiring. Their AGI is less than $89000.

If modified AGI is $89,000 or less both can contribute the max allowable amount to each IRA after contributing to a company retirement plan as long as total contribution stay under total limit. For the spouse that is not covered by retirement plan modified AGI can be $167,000.

[dktax]

I will tell them that they can indeed contribute $14000 to the simple and $6000 each (they both had earnings) to their traditional accounts. It isn't often that I get a client that has $26000 on hand to fund their retirement. Thanks to all for your help.