I have One Question related to IRA contribution

• Everyone is eligible to make contributions to a traditional IRA, but a tax deduction for those contributions may not always be available.
• The IRS restricts who can claim a tax deduction for contributions to traditional IRAs based on various factors, such as income and employer-sponsored retirement plans.
• The IRS limits the amount you can deduct each year, and this amount is subject to change each tax year.
• The IRA deduction is an above-the-line deduction, meaning you can take it regardless of whether you itemize your deductions or claim the Standard Deduction.
  
  This link may help you determine if you are eligible for a tax deductible IRA contribution:
  
  
• https://turbotax.intuit.com/tax-tips/investments-and-taxes/deductions-allowed-for-contributions-to-a-traditional-ira/L6yMopvkV?srsltid=AfmBOor8un5lzoMmspXA9wfu8Yd7rWuOw65wWCyHfCa46s8RQON0PttH

I still do not have exact answer from the expert.  Yes or No

Yes you can contribute to either a traditional IRA or a Roth IRA.  Once you are 70 and 1/2 or older you can no longer contribute to a traditional IRA but you can still contribute to a Roth IRA. Here is a helpful link to the IRS page that explains this information. 

 https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits  If you can't click on this link just copy it and paste it in your browser address bar.

The IRS claims the following are earned income:

• Taxable income you earned as an employee, such as wages, salaries, commissions, and tips
• Profits from operating your business or farm
• Long-term disability pay, if received before the minimum retirement age****
• Union strike benefits

If you are not yet retirement age for your company your disability is a substitute for wage income and can be used to contribute to a traditional or roth IRA.  If you are of retirement age for your company your disability benefits no longer count as wages and can not be used towards contributions to an IRA.  

Is 62 the minimum retirement age? If so, I can not contribute my taxable long-term disability compensation to my IRA when I reach that age.  

 

Thanks

Wayneyee

Hello, Wayneyee!

1. Can you contribute to a Traditional IRA or a Roth IRA, based on your long-term disability income reported on your W2 in Box 1?

• In general, yes, however, you must also subtract any amounts listed in box 11 of the W2, from the box 1 amounts on your W2, to derive at the amount that is considered as earned income for IRA contribution purposes.

2. Is 62 the minimum retirement age? 

• You can start receiving your Social Security retirement benefits as early as age 62. However, you are entitled to full benefits only when you reach your full retirement age. If you delay taking your benefits from your full retirement age up to age 70, your benefit amount will be higher.
• As of current regulations, you are not prohibited from contributing to an IRA based on your age; meaning you can continue to contribute to a traditional or Roth IRA regardless of how old you are, as long as you have earned income to do so.

For Additional Information on IRA's, please see the following:

• Retirement topics - IRA contribution limits 
• IRA Contribution Limits 
• Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs) 

Please feel free to reach backout with any additional questions or concerns you might have!

 

Have an amazing rest of your day!

 

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Hello, wayneyee!

In general, this depends on when you decide to start colecting your Social Security benefits. . Your benefit will be higher the longer you delay your start date. This adjustment is usually permanent.

Is 62 the minimum retirement age? 

• You can start receiving your Social Security retirement benefits as early as age 62. However, you are entitled to full benefits only when you reach your full retirement age. If you delay taking your benefits from your full retirement age up to age 70, your benefit amount will be higher.

" I can not contribute my taxable long-term disability compensation to my IRA when I reach that age. " 

• As of current regulations, you are not prohibited from contributing to an IRA based on your age; meaning you can continue to contribute to a traditional or Roth IRA regardless of how old you are, as long as you have earned income to do so.

For Additional Information on IRA's please see the following:

• Retirement topics - IRA contribution limits 
• IRA Contribution Limits 
• Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs) 
• When to Start Receiving Retirement Benefits - SSA 

Please feel free to reach backout with any additional questions or concerns you might have!

 

Have an amazing rest of your day!

 

 *Please say "Thanks," by clicking the thumbs up icon at the bottom of the post.
**Select the post that answers your question by clicking on "Mark as Best Answer.”

 

I can use my $57K long-term disability compensation income to contribute to my wife's IRA or  Roth?

 

Thanks

Wayne

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@wayneyee wrote:

I can use my $57K long-term disability compensation income to contribute to my wife's IRA or  Roth?

 

Thanks

Wayne

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No.  You must have compensation from working to contribute to an IRA.  Disability income is not compensation from working.

Go to this IRS website for Publication 590-A and on page 7 Table 1.1 shows what type of compensation is allowed for contributions to an IRA - https://www.irs.gov/pub/irs-pdf/p590a.pdf#page=7

As Terri Lynn indicated, the amount in box 1 of your W-2 minus any amount in box 11 is considered to be compensation that will support an IRA contribution.  This compensation can also be used to support an IRA contribution made by your spouse if your spouse has lower compensation and you file a joint tax return.

Hi TurboTax Team.

     From the previous answer from your team, I can contribute to an IRA or Roth. Please see the previous answer below.

 

1. Can you contribute to a Traditional IRA or a Roth IRA, based on your long-term disability income reported on your W2 in Box 1?

• In general, yes, however, you must also subtract any amounts listed in box 11 of the W2, from the box 1 amounts on your W2, to derive at the amount that is considered as earned income for IRA contribution purposes.

I get an annual W-2, which shows the money I get from a former employer's long-term disability policy as wages (Box 1 with nothing in Box 11). This has been the case since 2009. I have also gotten SSDI since that time, so my employer's policy brings (pays the difference to bring) me up to a certain percentage of my prior salary. I had a SEP-IRA until 2022 when the money from this account was transferred into a traditional IRA account.

 

For the first time, TurboTax told me I could, and recommended that I, contribute $8k to my IRA for the deduction. It seems to be telling me, similar what Terri Lynn said (but contrary to what DoninGA said), that the W2 employer's disability money is earned income and that I CAN contribute to my IRA because of this. So:

(1) Can I contribute to my IRA based on this W2 disability income? (I'm asking again because of the conflicting advice in the thread)

(2) If so, why is this the first time TurboTax has advised me in this way, given that my situation has been the same for the past 15 years (e.g., did something change in the tax code)?

1. Let's discuss the points of view based on the IRS.  IRS contribution requirements states:  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).

 

This felt vague so I looked at: What Isn’t Compensation?

Compensation doesn’t include any of the following items.

Earnings and profits from property, such as rental income, interest income, and dividend income.

Pension or annuity income.

Deferred compensation received (compensation payments postponed from a past year).

Income from a partnership for which you don’t provide services that are a material income-producing factor.

Conservation Reserve Program (CRP) payments reported on Schedule SE (Form 1040), line 1b.

Any amounts (other than combat pay) you exclude from income, such as foreign earned income and housing costs.

 

Which indicates that the IRS will see the W2 boxes 1 and 11 and figure out a taxable income allowed for an IRA. It doesn't seem to fit under the wages but it is not prohibited under not compensation. You may have found a gray area. Since you have the w2, I lean towards eligible.

 

2. The program changes and the tax laws change.