IRA/Keogh Limits


H

Hank Youngerman

In 2014, I had very little income. (I was unemployed at the start of the year, was looking for a job, and when nothing materialized, decided to stop looking and semi-retire.) For 2014, my only earned income will be about $10K (net) on Schedule C.

At the start of the year I did a backdoor Roth contribution for $6500.

So my questions are:

1) I initially didn't expect to be eligible to make deductible IRA contributions, but I guess I will be. Do I now technically report the initial IRA contribution as deductible, and then the converted amount as taxable income? It's a wash anyway compared to what I used to do, which is report it as non-deductible but then the conversion was non-taxable since the cost basis was 100% of the converted amount.

2) How much can I put in my Keogh, $3500 or $10,000? $3500 seems like the sensible number, but I'm still showing $10K income on Schedule C.
 
M

Mark Bole

In 2014, I had very little income. (I was unemployed at the start of the year, was looking for a job, and when nothing materialized, decided to stop looking and semi-retire.) For 2014, my only earned income will be about $10K (net) on Schedule C.

At the start of the year I did a backdoor Roth contribution for $6500.

So my questions are:

1) I initially didn't expect to be eligible to make deductible IRA contributions, but I guess I will be. Do I now technically report the initial IRA contribution as deductible, and then the converted amount as taxable income? It's a wash anyway compared to what I used to do, which is report it as non-deductible but then the conversion was non-taxable since the cost basis was 100% of the converted amount.

2) How much can I put in my Keogh, $3500 or $10,000? $3500 seems like the sensible number, but I'm still showing $10K income on Schedule C.
You're right, it's a wash. I don't believe you are required to take a
deduction for a Trad. IRA contribution even if eligible, so you seem to
have a choice of which way to report it, the way you are used to, or as
a tax deduction offset with taxable conversion income.

As for the self-employed retirement contribution, isn't "Keogh" a
generic term? I'd expect your plan is either some type of IRA, or a
solo 401k, the rules are different. With a solo 401k, you can make a
"salary deferral" contribution that in your case could offset most of
your Sched C net profit (the calculation takes into account your SE tax
and other items to put you on a par with a regular employee making a
401k contribution under an employer plan). It doesn't show up on
Schedule C, but rather on the front page of the 1040.
 
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H

Hank Youngerman

In 2014, I had very little income. (I was unemployed at the start of the year, was looking for a job, and when nothing materialized, decided to stop looking and semi-retire.) For 2014, my only earned income will be about $10K (net) on Schedule C.

At the start of the year I did a backdoor Roth contribution for $6500.

So my questions are:

1) I initially didn't expect to be eligible to make deductible IRA contributions, but I guess I will be. Do I now technically report the initial IRA contribution as deductible, and then the converted amount as taxable income? It's a wash anyway compared to what I used to do, which is report it as non-deductible but then the conversion was non-taxable since the cost basis was 100% of the converted amount.

2) How much can I put in my Keogh, $3500 or $10,000? $3500 seems like the sensible number, but I'm still showing $10K income on Schedule C.
I have a solo 401(k).

Since the contribution, as you said, shows up on the 1040 and not Schedule C, I still have $10K of income showing on Schedule C. That's why it seemed I might be able to take both the IRA deduction and make the self-employed plan contribution.

Can I?

It actually kind of super-charges my return, because my plan is to do a Roth conversion to bring my income up to the top of the 15% bracket. So if I put the extra $6500 in my solo 401(k) I will also Roth convert another $6500.
 
A

Alan

I have a solo 401(k).

Since the contribution, as you said, shows up on the 1040 and not Schedule C, I still have $10K of income showing on Schedule C. That's why it seemed I might be able to take both the IRA deduction and make the self-employed plan contribution.

Can I?

It actually kind of super-charges my return, because my plan is to do a Roth conversion to bring my income up to the top of the 15% bracket. So if I put the extra $6500 in my solo 401(k) I will also Roth convert another $6500.
If I understand this correctly, you already made the maximum
contribution to an IRA ($6500 at the start of the year which you then
converted to a Roth). You have an HR 10 qualified plan (Solo 401K).
This allows you to make an elective deferral based on your net earnings.
For this purpose (elective deferrals), I believe the definition is your
net income from Sched. C less the deduction for 1/2 of your SE tax
limited by the 401K annual maximum. If you make an elective deferral to
your 401K, you could perform a Roth conversion only if the written plan
allows for in-service distributions (a distribution while still employed).
 
H

Hank Youngerman

Thank you Alan.

Your understanding is correct. So apparently I can make the $9500 contribution notwithstanding the IRA contribution?

The Roth conversion is inside a former employer's plan, which does allow conversions of this sort.
 
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A

Alan

Thank you Alan.

Your understanding is correct. So apparently I can make the $9500 contribution notwithstanding the IRA contribution?

The Roth conversion is inside a former employer's plan, which does allow conversions of this sort.
Traditional IRAs and qualified plans are two different animals. You can
use the same earnings to compute an elective deferral to a qualified
plan and a voluntary contribution to your IRA.
 

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