ST Disability and IRA Contributions

[FlaGator]

I have a family member who is currently collecting private ST disability.

I have reviewed IRS Pub 590-A, and that type of income is neither explicitly excluded from eligibility, nor mentioned as eligible to be included for contribution purposes, that I could find. I've seen their pay advice, and the ST Disability is being taxed for FICA/Medicare.

Does anyone have knowledge of this? If you do, please point me to the relevant IRS document(s). I want to keep this clean.

Thanks!

 

[cathy63]

See page 6 of Pub 590-A:

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).

Your family member should contact their employer's benefits and payroll people and find out if their disability pay will be reported in box 1 or not. I don't think there's any way to know for sure without asking. Some disability pay is taxable, some isn't. The fact that this money is being taxed for FICA means it will be in boxes 3 and 5 of their W-2, but that doesn't necessarily mean it will also show up in box 1.

If they can't get an answer, they can either set aside the funds and make the contribution after they get the W-2 next January; or they can make the contribution now and just be prepared to withdraw it (plus earnings) before next April 15th if it's not taxable compensation.

 

[FlaGator]

Appreciate the clarification and guidance, I will pass it along.

Thank you!