Is there a way to defer income in this scenario ?

[ownyourfuture]

*This is a friend who doesn't want to tell me how much he makes*
(No Income Figures)
I can only guess that it's at least 50 K per year, he's married, 63 years old, & his wife makes @ least that much.

He's going to retire at the end of April. Part of the package is a 9 month lump sum.

He maxes out his 401(k), but the 9 month lump sum payment, isn’t eligible.
In a nutshell, he's going to have a full 13 months of earnings for 2020, but only 4 of those months are 401(k) eligible.

Can he still contribute to an IRA for 2020 ?
Any other thoughts/suggestions ?

Thanks in advance

 

[SecondCor521]

Yes, he can contribute to a traditional IRA for both him and his wife, provided that his income is enough to cover both IRA contributions. Provided their AGI is low enough, they could deduct the contributions from income. $7K for him, and $7K for his wife if she's over 50.

He could put as much of his salary between now and retirement into his 401(k) as his company will allow. Probably too late to make changes for this, though.

He could ask his company to defer payment of the 9 month lump sum until 1/1/2021, citing tax concerns. They might be willing to do so.

If he has an HSA qualified health plan, he could contribute to an HSA (perhaps only for the last 8 months of the year, but HSA eligibility can be calculated on a monthly basis).

He could realize capital losses, up to $3K of which can offset ordinary income.

He could pay student loan interest or tuition and fees (maybe not for him but maybe for one of his kids or grandkids).

If he starts his own business after retiring he could maybe do an SEP or SIMPLE plan and make contributions to that.

 

[pb4uski]

Good list above. Assuming that they are MFJ and they don't have any other substantial sources of income they would be in the 12% tax bracket so no need to go crazy trying to defer income IMO.

 

[ownyourfuture]

Thanks for the replies.

 

[HI Bill]

When I was planning to FIRE in April, I upped the 401(k) contribution to the maximum (75%), but it's too late for this couple.

 

[ownyourfuture]

When I was planning to FIRE in April, I upped the 401(k) contribution to the maximum (75%), but it's too late for this couple.

Not true. I'm the OP & I stated
"He maxes out his 401(k)"