deferred income compensation taxation

[LL213]

I left my job in April 2021. I have deferred compensation distribution starting in October. Will that income report in W2 and be taxed as ordinary income in 2021? 

[ee-ea]

That income will be reported  on a  W-2 and will be taxed as ordinary income on a 2021 tax return. 

[LL213]

Thanks. I wasn't qualified to contribute to IRA in prior years. Can I have IRA if I only have contributed 7k to 401k in 2021 so far? 

[rschule1]

As a second opinion-Deferred compensation distributions will be typically reported on form 1099-R, from which, box 2a of the form will be taxed as ordinary income.  The form will also provide other important information such as Box  4. Federal Income tax withheld, and Box 7. distribution code, along with other important information. Please see link below.

 Form 1099R

[rgreenfield11]

Hi LL213

For most taxpayers, saving for retirement is the best way to lower your taxes and to build a sizable nest egg. TurboTax will help you take advantage of the tax deductions related to saving for your retirement.

If you're among the 51 million Americans who participate in a company's 401(k) plan, you can contribute up to $19,500 in 2020. And if you are 50 or older, you can stash an extra $6,500 in catch-up contributions, for a total of $26,000.

If you participate in a workplace-based retirement plan, you can still make tax-deductible contributions to an IRA if you are single and your income is less than $65,000 in 2020.

• If your income is between $65,000 and $75,000 in 2020, you qualify for a partial deduction.
• If you are married filing a joint return, the phase-out limit for deductible IRA contributions begins at $104,000 in 2020 and the write-off disappears once your income tops $124,000.

https://turbotax.intuit.com/tax-tips/retirement/boost-your-retirement-savings/L3lryQHVz

Hope that helps,

Ron

[Mike9241]

what type of deferred comp.  is it a return of money put into a retirement a/c? if so, then you should have the option of a direct rollover into an IRA. if you get the cash instead, you have 60 days to put it into a retirement a/c otherwise you will owe not only income taxes but probably penalty taxes on early distribution if under 55.

if it's deferred wages, RSUs, ISOs, etc then it will be taxed as ordinary income.  

[LL213]

Thank you for the follow-up. It is from deferred wages. If it will be taxed as ordinary income, can the taxable amount be reduced by OPEX if I invest them in an oil drilling project?