Can I contribute to an IRA and 401k?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
sgilmarti89
Posts: 28
Joined: Thu Aug 27, 2015 4:22 pm

Can I contribute to an IRA and 401k?

Post by sgilmarti89 » Thu Aug 27, 2015 4:27 pm

Long-time lurker who needs help please.

I have a sole proprietorship and worked in 2014 until October, after which I stopped to take care of an ill relative. I did not work in 2015. I have a check for $16,000 for work done from August - October 2014 that I only received in February 2015.

When deciding how much to contribute to my Individual 401(k) and IRA, is this $16,000 earned income for 2014 or 2015? Can I contribute to my IRA for 2015 if I don't have any other earned income?

NightFall
Posts: 269
Joined: Wed Mar 12, 2014 4:38 pm

Re: Can I contribute to an IRA and 401k?

Post by NightFall » Thu Aug 27, 2015 4:46 pm

I can't answer all of your questions, but whether or not the $16,000 is earned income in 2015 depends on when you (or your client) reported it to the IRS in my opinion. If it was already reported on your 2014 taxes, then I don't see how you have earned income from the IRS's perspective in 2015. If you didn't report it in 2014, then you would be reporting it in 2015 as earned income.

Isn't this just using a cash basis for accounting?
https://en.wikipedia.org/wiki/Cash_method_of_accounting

ieee488
Posts: 1989
Joined: Thu Dec 10, 2009 8:57 am

Re: Can I contribute to an IRA and 401k?

Post by ieee488 » Thu Aug 27, 2015 4:48 pm

As long as you have earned income, you can contribute as much as $5,500 ($6,500 if 50+) in 2015 to a Roth IRA.
Dell Optiplex 3020 (Win7 Pro), Dell Precision M6300 (Ubuntu Linux 12.04), Dell Precision M6300 (Win7 Pro), Dell Latitude D531 (Vista)

Topic Author
sgilmarti89
Posts: 28
Joined: Thu Aug 27, 2015 4:22 pm

Re: Can I contribute to an IRA and 401k?

Post by sgilmarti89 » Tue Sep 01, 2015 12:05 pm

That was what I thought, as well. But the IRA rules say that "deferred compensation" cannot be used to contribute to an IRA.

What I am unclear about is whether income received in Jan 2015 for work performed in October 2014 counts as "deferred" compensation? Or is this constructively received in 2015? How do other people who receive money next year for ending quarter projects calculate how much they can contribute?

It's all a bit confusing to me.

sawhorse
Posts: 3482
Joined: Sun Mar 01, 2015 7:05 pm

Re: Can I contribute to an IRA and 401k?

Post by sawhorse » Tue Sep 01, 2015 1:05 pm

ieee488 wrote:As long as you have earned income, you can contribute as much as $5,500 ($6,500 if 50+) in 2015 to a Roth IRA.
Is this different for sole proprietorship? Roth contributions are restricted to people under certain income:

http://www.irs.gov/Retirement-Plans/Amo ... e-For-2015

ieee488
Posts: 1989
Joined: Thu Dec 10, 2009 8:57 am

Re: Can I contribute to an IRA and 401k?

Post by ieee488 » Tue Sep 01, 2015 2:46 pm

sawhorse wrote:
ieee488 wrote:As long as you have earned income, you can contribute as much as $5,500 ($6,500 if 50+) in 2015 to a Roth IRA.
Is this different for sole proprietorship? Roth contributions are restricted to people under certain income:

http://www.irs.gov/Retirement-Plans/Amo ... e-For-2015
I was basing my answer on OP's $16,000 earnings.
Dell Optiplex 3020 (Win7 Pro), Dell Precision M6300 (Ubuntu Linux 12.04), Dell Precision M6300 (Win7 Pro), Dell Latitude D531 (Vista)

Post Reply