John (age 54 and single) has earned income of $3,600. He has $32,200 of unearned

Question

John (age 54 and single) has earned income of $3,600. He has $32,200 of unearned (capital gain) income.

If he does not participate in an employer-sponsored plan, what is the maximum deductible IRA contribution John can make in 2015?

If he does participate in an employer-sponsored plan, what is the maximum deductible IRA contribution John can make in 2015?

If he does not participate in an employer-sponsored plan, what is the maximum deductible IRA contribution John can make in 2015 if he has earned income of $12,000?

If he does not participate in an employer-sponsored plan, what is the maximum deductible IRA contribution John can make in 2015?

If he does participate in an employer-sponsored plan, what is the maximum deductible IRA contribution John can make in 2015?

If he does not participate in an employer-sponsored plan, what is the maximum deductible IRA contribution John can make in 2015 if he has earned income of $12,000?

Explanation / Answer

A./

DEDUCTIBLE CONTRIBUTIONS TO AN IRA ACCOUNT ARE LIMITED TO THE LESSER OF $5,000 OR EARNED INCOME.IF THE INDIVIDUAL IS AT LEAST 50 YEARS OLD BY THE END OF THE YEAR, HE/SHE MAY MAKE A CONTRIBUTION OF UP TO THE LESSER OF $6,000 OR EARNED INCOME.

IN THIS CASE, JOHN’S DEDUCTIBLECONTRIBUTION IS THE LESSER OF (1) HIS EARNED INCOME OF $3600 OR (2) THE MAXIMUM DEDUCTIBLEAMOUNT OF $6,000.SO HIS DEDUCTIBLE CONTRIBUTION IS $3600.

B./

TAXPAYERS WHO ARE PARTICIPANTS IN AN EMPLOYER SPONSORED RETIREMENT PLAN ARE ALLOWEDTO MAKE DEDUCTIBLE CONTRIBUTIONS TO AN IRA ACCOUNT AS LONG AS THEY MEET CERTAIN AGIRESTRICTIONS.IN 2015, THE DEDUCTIBILITY OF IRA CONTRIBUTIONS IS PHASED-OUT PROPORTIONALLY FOR AGI BETWEEN $58000 AND $68000.

JOHN’S AGI OF $35800 (3600 EARNED INCOME + 32200 CAPITALGAIN) FALLS BELOW THE $58,000 AGI PHASE-OUT THRESHOLD. THUS, JOHN IS ALLOWED TO MAKE ACONTRIBUTION EQUAL TO THE LESSER OF $6000 OR EARNED INCOME $3600. SO HIS DEDUCTIBLE CONTRIBUTION IS $3600.

(THE $6,000 = $5,000 STANDARD LIMIT+ $1,000 CATCH-UP CONTRIBUTION FOR TAXPAYERS AGE 50 AND OVER)

C./

IN THIS CASE, JOHN’S DEDUCTIBLECONTRIBUTION IS THE LESSER OF (1) HIS EARNED INCOME OF $12000 OR (2) THE MAXIMUM DEDUCTIBLEAMOUNT OF $6,000.SO HIS DEDUCTIBLE CONTRIBUTION IS $6000.

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