Can I contribute excess insurance compensation to IRA?

[Greg7]

I'm retired. Each year my former employer send me a W2 form showing compensation of $2717.  This is due to them continuing to carry excess life insurance for me.  It is subject to SS and Medicare tax.  2717 is shown in boxes 1,3,5,11 of the W2.  Box 12a shows the following: C  2716; DD 22416; M 163; N 39.  Can I contribute this to a Roth or Traditional IRA ?

[macuser_22 · Accepted solution]

While I would not think so, since this is income that is not compensation for work done, the IRS says yes.

See IRS Pub 590A "What is Compensation"

https://www.irs.gov/publications/p590a#en_US_2016_publink1000230355

What Is Compensation?

Generally, compensation is what you earn from working. For a summary of what compensation does and does not include, see Table 1-1 . Compensation includes all of the items discussed next (even if you have more than one type).

Wages, salaries, etc.

Wages, salaries, tips, professional fees, bonuses, and other amounts you receive for providing personal services are compensation. The IRS treats as compensation any amount properly shown in box 1 (Wages, tips, other compensation) of Form W-2, Wage and Tax Statement, provided that amount is reduced by any amount properly shown in box 11 (Nonqualified plans). Scholarship and fellowship payments are compensation for IRA purposes only if shown in box 1 of Form W-2.

[Greg7]

Thank you for pointing me in the right direction.  Actually, I cannot contribute to an IRA since the same amount that is in box 1 (Wages tips, other compensation) is also in box 11 (Nonqualified Plans).  IRS says you need to subtract amount in Box 11 from amount in Box 1; which leave me with zero.  During TT Federal check routine they said that I could contribute to an IRA even though these boxes had the same value.  That needs to be corrected!

[macuser_22]

Right - that is why I highlighted that part to point out box 11.