Fiduciary fees & Roth IRA

[dhawkcpa]

My client acted as fiduciary for 2 family estates. He took quite reasonable fees of $10,000.

I believe that his non-professional status gets him out of the self-employment tax. He wants to contribute the entire amount to Roth IRA's for 2008. He and his wife are both over 70.

Is there any reason they can't??

Thanks.

[JoshinNC]

Define "earned income"

If this income qualifies as "earned income" than it can be used to qualify for the ROTH. If not, and there is no other "earned income" than no ROTH.

[Bees Knees]

The compensation has to be W-2 wages or earnings from self employment. If you are taking the position that it is not subject to self employment tax, then it is not earnings from self employment, and would not qualify for a Roth IRA contribution. (IRS Pub 590, page 8)

[dhawkcpa]

Thank you.

[OtisMozzetti]

Amounts you receive for performing personal services

I believe that each of us could take another look at p. 8 of Publ. 590. It says that compensation, for purposes of determining IRA contributions, includes "amounts you receive for performing personal services". It does also include alimony.

Another example of compensation which I am certain allows there to be IRA contributions consists of earnings by "precinct" election officials where the annual amount turns out not sufficient to trigger Social Security taxes.

[Bees Knees]

I believe that each of us could take another look at p. 8 of Publ. 590. It says that compensation, for purposes of determining IRA contributions, includes "amounts you receive for performing personal services". It does also include alimony.

Another example of compensation which I am certain allows there to be IRA contributions consists of earnings by "precinct" election officials where the annual amount turns out not sufficient to trigger Social Security taxes.

IRC Section 219(f) says:

(f) Other definitions and special rules
(1) Compensation
For purposes of this section, the term ``compensation''
includes
earned income (as defined in section 401(c)(2)). The term
``compensation'' does not include any amount received as a pension
or annuity and does not include any amount received as deferred
compensation. The term ``compensation'' shall include any amount
includible in the individual's gross income under section 71 with
respect to a divorce or separation instrument described in
subparagraph (A) of section 71(b)(2). For purposes of this
paragraph, section 401(c)(2) shall be applied as if the term trade
or business for purposes of section 1402 included service described
in subsection (c)(6).

IRC Section 401(c)(2) says:

(2) Earned income
(A) In general
The term ``earned income'' means the net earnings from selfemployment
(as defined in section 1402(a)), but such net
earnings shall be determined--
(i) only with respect to a trade or business in which
personal services of the taxpayer are a material incomeproducing
factor,
(ii) without regard to paragraphs (4) and (5) of section
1402(c),
(iii) in the case of any individual who is treated as an
employee under sections \3\ 3121(d)(3)(A), (C), or (D),
without regard to paragraph (2) of section 1402(c),
(iv) without regard to items which are not included in
gross income for purposes of this chapter, and the
deductions properly allocable to or chargeable against such
items,
(v) with regard to the deductions allowed by section 404
to the taxpayer, and
(vi) with regard to the deduction allowed to the
taxpayer by section 164(f).
For purposes of this subparagraph, section 1402, as in effect
for a taxable year ending on December 31, 1962, shall be treated
as having been in effect for all taxable years ending before
such date. For purposes of this part only (other than sections
419 and 419A), this subparagraph shall be applied as if the term
``trade or business'' for purposes of section 1402 included
service described in section 1402(c)(6).
[(B) Repealed]
(C) Income from disposition of certain property
For purposes of this section, the term ``earned income''
includes gains (other than any gain which is treated under any
provision of this chapter as gain from the sale or exchange of a
capital asset) and net earnings derived from the sale or other
disposition of, the transfer of any interest in, or the
licensing of the use of property (other than good will) by an
individual whose personal efforts created such property.

IRC Section 1402(c)(6) says:

(6) the performance of service by an individual during the
period for which an exemption under subsection (g) is effective with
respect to him.

(Section 1402(g) is the religious exemption from Social Security)

I see self employment earnings included.
I see W-2 wages included.
I see alimony included.
I see members of certain religious faiths who have elected not to be covered by Social Security included.

Where do you see other compensation that is not subject to FICA or SE tax, such as non-professional fiduciary fees, jury duty fees, or election judges?

[FEDUKE404]

Conundrum

This kinda falls into the category of "you can't have your cake and eat it too."

Saying it is non-employment/non-professional endeavor pretty well shuts the door on the Roth IRA. Saying it IS such pretty well opens the door for self-employment tax.

One might think that $10,000 paid to someone for any kind of service might rise above the level of a simple "thank you."

BTW: How was one person going to place $10k into a Roth IRA in the first place??

[Roland Slugg]

Not so sure

Regs §1.219-1(c)(1) says:

COMPENSATION. For purposes of this section, the term "compensation" means wages, salaries, professional fees, or other amounts derived from or received for personal service actually rendered (including, but not limited to, commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, and bonuses) and includes earned income, as defined in section 401 (c) (2).

Note that the Regs DO NOT say, "wages subject to FICA tax and earnings subject to SE tax." In fact the language goes out of its way to say that compensation includes earned income, clearly implying that other income, not subject to SE tax, qualifies for IRA/Roth IRA contributions.

One type of income in this very category is the earnings of children under 18 from newspaper routes. I'm inclined to think that income of the type described in the original post in this thread is another.