This is my first post after a couple years of lurking. Thank you to all who share knowledge and advice so openly. I've come to the decision that I should be contributing to a deductible traditional IRA rather than a Roth as I have been for years. Although I know this to be the right decision, I've been scared to do it so far for this reason:
I work for one company without any retirement offerings, and occasionally (once or twice a year) will have events going on where I am additionally paid by Super Mega Corp for a partial day of work (we're talking roughly $300). Super Mega Corp could be one of several different large companies. Two years ago, one Super Mega Corp sent a W2 with the Retirement Plan box checked. I'm sure they offer one, but I'm not truly employed by them and certainly couldn't participate in their plan even if I tried. I'd like to change to a trad IRA for the pretax deduction, which makes sense because my regular employer doesn't offer a 401(k), my wife's does, but our income is in the sweet spot where I'm still fully deductible. My concern is that Super Mega Corp might do this again, and totally destroy my ability to deduct my IRA contribution. That fear has kept me contributing to a less than ideal Roth IRA until now.
Anyone have any advice? Is this a genuine concern, and I should just stick with a Roth as I have been? Or can I contest their W2 if this happens in the future and rightfully deduct a traditional IRA contribution? If they burned me on this, so to speak, I'd end up with a nondeductible IRA contribution, and that would be the worst option of all.
We are currently in the 25% marginal bracket, no state income tax, and that's why I thought it would be better to make this switch if I can.
Can an incorrectly checked "Retirement plan" box mess me up?
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Re: Can an incorrectly checked "Retirement plan" box mess me up?
It's a genuine concern in the sense that if you do nothing, the IRS receives a copy of the W-2 and will think you are not entitled to deduct your traditional IRA contribution. Obviously if you want to deduct your contribution you'll have to contact Super Mega Corp and get them to issue you a corrected W-2. If Super Mega Corp won't cooperate then I guess I'd call the IRS (but regrettably they've cut staff and it takes quite a bit longer to get through on the phone than it did a few years ago).
(Unfortunately, the only time it happened to me, the W-2 was correct. There was some miserable token "profit sharing" plan that I hadn't even been told about, and I received something like $15.93 in "profit sharing," and that resulted in one of the boxes being checked and disqualified me from deducting my IRA contribution).
(Unfortunately, the only time it happened to me, the W-2 was correct. There was some miserable token "profit sharing" plan that I hadn't even been told about, and I received something like $15.93 in "profit sharing," and that resulted in one of the boxes being checked and disqualified me from deducting my IRA contribution).
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Re: Can an incorrectly checked "Retirement plan" box mess me up?
You could recharacterize your contribution to Roth so you don't get stuck w/ nondeductible TIRA contribution.mbasherp wrote:.............................. If they burned me on this, so to speak, I'd end up with a nondeductible IRA contribution, and that would be the worst option of all.
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Re: Can an incorrectly checked "Retirement plan" box mess me up?
Large Corps are very likely to have a DB plan in place. This may be the reason that Box 13 should be checked per the following active participation definition for DB plans:
Sounds like there is no practical way to eliminate this exposure in your current situation.Defined Benefit Plan
The individual is an active participant if he/she is not excluded under the eligibility provisions of the plan for the plan year ending with or within the individual's taxable year ,regardless of whether the individual has elected to decline participation in the plan, has failed to make a mandatory contribution specified under the plan or has failed to perform the minimum service required to accrue a benefit under the plan.
Re: Can an incorrectly checked "Retirement plan" box mess me up?
Unless the OP is so excluded.Alan S. wrote:Large Corps are very likely to have a DB plan in place. This may be the reason that Box 13 should be checked per the following active participation definition for DB plans:Sounds like there is no practical way to eliminate this exposure in your current situation.Defined Benefit Plan
The individual is an active participant if he/she is not excluded under the eligibility provisions of the plan....
Depends on what is meant by "...I'm not truly employed by them and certainly couldn't participate in their plan even if I tried."
Re: Can an incorrectly checked "Retirement plan" box mess me up?
For clarity, what I mean by "not truly employed" is that I believe I really should be given a 1099 for this work rather than given a W2. But there's no way to change that, unfortunately. I am not "hired"," I have no benefits or protections, nor is my "employment" with Super Mega Corp initiated or terminated at any point. I think the whole thing is a bit odd, but at the same time I want to optimize my tax advantaged savings.
It sounds, so far, like I should stick with the simplicity of a Roth. I understand that the 25% marginal bracket can go either way in the Roth vs tax deductible IRA with some folks. I suppose adage of a good solution now vs waiting for perfect solution later applies.
Thanks for the insight!
It sounds, so far, like I should stick with the simplicity of a Roth. I understand that the 25% marginal bracket can go either way in the Roth vs tax deductible IRA with some folks. I suppose adage of a good solution now vs waiting for perfect solution later applies.
Thanks for the insight!
Re: Can an incorrectly checked "Retirement plan" box mess me up?
1099 vs W2 is not supposed to be at your choice or your employers but is determined by rules. Even so, you could be right.mbasherp wrote:For clarity, what I mean by "not truly employed" is that I believe I really should be given a 1099 for this work rather than given a W2. But there's no way to change that, unfortunately. I am not "hired"," I have no benefits or protections, nor is my "employment" with Super Mega Corp initiated or terminated at any point. I think the whole thing is a bit odd, but at the same time I want to optimize my tax advantaged savings.
It sounds, so far, like I should stick with the simplicity of a Roth. I understand that the 25% marginal bracket can go either way in the Roth vs tax deductible IRA with some folks. I suppose adage of a good solution now vs waiting for perfect solution later applies.
Thanks for the insight!
It might be you should just refuse to do these odd jobs at all. Maybe there is a good reason of some kind?