Minimum Earned Income for Trad. IRA Ded.

Hello My brother contributed 4,000.00 to his traditional IRA account for 2007 . His only source of income is one W2 from an employer with income in box 1 of approx. $3,000.00. He contributed approx. $2,000.00 to an employer sponsored

401k plan . My question is the amount of earned income my brother has in order to determine his IRA deduction . Is the amount 5,000.00 or 3,000.00 ? Another way of stating the question is the earned income reduced by the contribution to the employer's 401 k plan ? If so my brother IRA deduction becomes only 3,000 and not 4,000.00 .

Any help is greatly appreciated .

Regards Mason

Reply to
allout22
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$3,000

Note that whether it's deductible or not depends on what other income he and

Unless he has a spouse with earned income and files a joint return with her, he has an excess contribution equal to $4,000 minus the W-2 Box 1 amount. He must remove the excess and the earnings on it by the extended due date of his return in order to avoid the 6% excess contribution penalty.

Reply to
Phil Marti

The maximum you can contribute to an IRA is min(earned income, 4000). Change the 4000 to 5000 is over 50. There's a special rule if your company is going broke, and the limit may be 7000 if I remember correctly. Formula is more complicated if you are married. Earned income includes W2, self employment income, and perhaps combat pay that you elect to include in earned income (though I'll have to check on this one).

Reply to
removeps-groups

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