Advisor Flipbooks

IRA contributions. With tax season upon us, many taxpayers will consider making their IRA contributions. Now is a good time to remind your clients about maximizing their retirement savings. Anyone with earned income ("compensation") can contribute to a traditional IRA. Regardless of age, as long as the taxpayer has earned income, they can contribute to atraditional IRA. It's the deductibility of the IRA contribution that is subject to income limits. Just a reminder, while there are no income limits for a traditional IRA contribution, Roth IRA contributions do have income limits. If your client turned 50 this year, they're entitled to make a catch-up contribution of $6,500 for their 401(k) if their plan allows and an additional $1,000 for an IRA contribution. What is compensation for IRA contribution eligibility? Compensation Wages, salaries, commissions, professional fees, bonuses, other amounts received for personal services Net self-employment income (reduced by contributions to employer plans and the deduction for self-employment taxes) Net self-employment income from personal services (e.g., clergy, professional traders), even if it is not subject to self- employment tax (reduced by contributions to employer plans and the deduction for self-employment taxes) Taxable alimony and/or maintenance payments Combat pay, even though it may be excluded from federal income tax Accrued vacation pay Director's fees, jury fees Scholarship or fellowship payments, if included in Box 1 of a W-2 Difficulty of care payments Taxable non-tuition fellowship or stipend payments NOT Compensation Pension and annuity income: IRA, Roth IRA, company plan distributions, and nonqualified annuity distributions Rental income (unless it is the taxpayer's business) Interest income, dividend income, capital gains income, certain income from partnerships, S-corp income Nontaxable alimony and/or maintenance payments Life insurance proceeds Deferred compensation Severance pay Disability payments and unemployment income Child support Amounts excluded from income (other than combat pay) Social Security benefits Source: Ed Slott's IRA Advisor – February 2022

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