A self-employed individual (retired) would like to reduce his tax liability. He has about $5,300. in Net SE income. What is the max that he can contribute to a regular IRA for 2006 for himself and his non-working spouse.? They are both over 50 years of age and do not participate in a qualified plan.
-
-
TTB, page 1-3, age 50 and over, max IRA contribution = $5,000 per person, limited by earned income, which in your case is $5,300, unless there is other W-2 income you didn't mention. -
IRA Contribution
He could contribute $5,000.00, and contribute the balance of his adjusted gross income up to $5,000 for his non-working spouse. In you senario the spouse's contribution would be $111.00.
Why only $111.00. Your total contribution is limited to AGI, not the business net income. You first must subtract 1/2 self-employment tax to get the AGI.Last edited by RLymanC; 09-19-2006, 05:10 PM.Confucius say:
He who sits on tack is better off.Comment
-
I don't think any of the answers are correct so far. Here's my two cents.
If Schedule C net income = $5,300, then COMPENSATION for purposes of the IRA contribution = $4,926 after reducing the S/E income by half the S/E tax.
The taxpayers can contribute the full amount of $4,926 to the IRA(s) in any allocation between H & W. This, of course, assumes there are no other facts such as W-2 wages, excess AGI, etc. which we don't know about.
New York Enrolled AgentComment
-
I think I saw this question
I think I saw this question on an exam in one of my CPE courses.Comment
-
Well if you are going to get nit picky, the answer is we don't know. The question does not say there is no other earned income. What if the retired self employed person also works at Wal Mart one day a week saying hi and good bye to everyone entering and leaving the store? What if the taxpayer was a self employed minister with a religious election to be excluded from Social Security coverage?
Self employment earnings for purposes of the IRA contribution rules is defined as net profits from self employment, minus the one half self employment tax deduction on the front of the 1040. So how do we know that the $5,300 does not already reflect that reduction?Comment
-
Geez, Bees - humility is NOT your strong suitComment
-
How's it going down there, by the way? Is it hot this time of year in Fort Worth, or does September bring you guys some relief? Next time you're in Minnesota, we ought to get together for lunch and catch up on things....Originally posted by UnregisteredComment
-
Ira Contribution
The taxpayer does not have any other earned income. The $5,300. has not been reduced by 1/2 of the SE tax.
Thank you for your interest.Comment
Comment