Odd Retirement Plan??

[MelanieCPA]

Client is W-2 employee. Box 13, "Ret plan" is checked on his W-2, however, there is no amount noted in Box 12 as the contribution amount, and all wages match. His weekly paystub shows that he contributes $24 per pay AFTER TAX to his IRA.
The employer contributes an additional $55 per weekly pay period to the IRA. The IRA does not have the employer's name associated with it. The employee received a Form 5498 for $4095 (which includes both his after tax contributions and the employers contributions).
How should this be reported??

[ChEAr$]

Not really odd

Might be that employee is covered by an old fashioned defined benefit plan, in which case
there would be no entries atall on a W2 form.

The IRA in place would not qualify as a retirement plan for W2 purposes, since any IRA
is by definition an INDIVIDUAL retirement plan.

[erchess]

When you say

no entries at all on the W2, I don't think you mean to say that checking the pension plan box was an error do you?

[MelanieCPA]

Then...

Is box 13 on the W-2 checked in error? Should this be reported as a deductible contribution? What about the employer's contribution portion??

[jainen]

Strange but true

>>Is box 13 on the W-2 checked in error?<<

Box 13 indicates that the employee is COVERED by a plan. It does not indicate that he participates in it. In some cases, he would be considered to be covered by the plan even if he is not eligible to participate! Strange but true.

[George Boutwell]

Could this be . . .

Could this be a SEP IRA with additional voluntary employee contributions?

[Snaggletooth]

No Participation Necessary

The box only means that a plan exists for that employee. For example, the plan may be entirely funded by the employer.

As far as the payroll deduction, this could be the employee's contribution into an entirely individual plan with no employer matching, perhaps an IRA "simple" (anything but), or even a non-qualified plan such that the employee's share is not deducted. Another thing that may shed light on the situation might be to try and reconcile his taxable income from the W-2 to the "Gross Pay" on final check stub, or to the Medicare taxable pay. Any deferral should show up in this comparison.

And perhaps the most likely scenario of all -- employer error in issuing the W-2.

[MelanieCPA]

So...

Thanks for all of your input thus far... I'm still stumped as to where to report the contribution. I don't think it can be a deductible IRA contribution because the W-2 is showing that he's in an employer plan (or has one available) (and his income is over the phase-out limits).
So, should it go on an 8606 as a nondeductible contribution?? And what amount? His contribution only or the total (including the employers), which is what's on the 5498 (and is not earmarked in anyway as the employers). Reporting the whole amount would mean that he will never pay tax on the employers contribution amount, which cannot be correct. Your thoughts please...

[Bees Knees]

What you are looking at is a Deemed IRA (TTB page 13-20). Qualified plans can allow employees to contribute after tax dollars to an IRA set up in their name. Since it is an after tax contribution, the employee takes the IRA contribution deduction on the front of the 1040, as if the employee did it directly. Since it is also done through the employer's qualified plan, the employee is considered an active participant and thus, the AGI limitation phased-outs would apply.

The IRA can also (and should be) set up as a Roth IRA for employees that have their traditional IRA contribution deduction phased-out under the active participation rules.

Also, there is nothing to report in box 12 since all IRA contributions done through an employer's qualified plan are included in box 1 taxable wages. There should be a note in box 14 as to the amount contributed on behalf of the employee.

For more information on Deemed IRA plans, see IRS Pub 3998, page 6 (called payroll deduction IRAs in the Pub).

[MelanieCPA]

One more question...

Thank you, Bees Knees. There is nothing in Box 14 (or any place else on the W-2) indicating the amount contributed on behalf of the employee.
I have just one more question...
Should the employee's 5498 include the total amount contributed or his contributions only? Do I need to explain to the IRS that we are deducting his contributions only (because the amount I am using will not agree with the 5498, which includes the employer's contributions too).

[outwest]

I would'nt worry about the 5498..

I'm sure the IRS is concerned if you show more IRA contributions on your return than the 5498 shows deposited.

On the other hand, if the taxpayer chooses to hurt themselves by not taking all they are entitled too, the IRS will shake it's head and let them do what they wish.