Traditional IRA Question(s)

[kannon]

Good Morning FIRE's -

Have a question, actually two, on traditional IRAs.

I am ER'ing 31 Dec 14 (yeah!!). I will receive a lump sum annual leave payout in 2015. First question, and I think the answer is yes, is can I use that for an IRA. I am assuming that the lump sum is considered compensation.

Second question. My wife is also ER'ing in Sep 15. I want to max out both her 403b and her IRA for total of $30.5k. No problem on the 403b. But not sure if her after tax salary that's left can do the IRA. Is the $30.5k counted against her pre tax or post tax salary?? We could fund the full IRA amount by using savings. Just not sure what the IRAs will let us do.

Thank you for your help.

Kannon

 

[gauss]

Hmm... Those are some good questions that you have there Kannon.

Another good resource for questions on tax issues pertaining to retirement accounts that I have used in the past is http://fairmark.com/forum/index.php.

-gauss

 

[Senator]

I am assuming that the lump sum is considered compensation.

It is considered income, not compensation. There is no FICA taken out.

Is the $30.5k counted against her pre tax or post tax salary

It would be Pretax. You can file EXEMPT, and not have any taxes, other than FICA taken out.

 

[kaneohe]

a similar question from bogleheads.org
Bogleheads • View topic - Lump-Sum Payment for Unused Annual Leave – Earned Income?

You might also ask at the fairmark.com site to confirm.

Will you have enough in your lump sum to fill your IRA and more?
If you have more, you could use the excess as a contribution to your wife's IRA
(spousal contribution).