Ask Experts Questions for FREE Help !
Ask
    CPA2010's Avatar
    CPA2010 Posts: 4, Reputation: 1
    New Member
    		  
    #1

    Oct 27, 2010, 06:54 AM
    401K contribution from 1099m
    I'm a soon to be retired Insurance agent and am looking at my options regarding Deferred Compensation(DC) and Extended Earnings(EE). These can be paid out in 3-10year increments on form 1099m. I'm over 60 years old and am wondering if I can put these 1099m payments into a 401K of similar tax sheltered plan?
    ebaines's Avatar
    ebaines Posts: 12,131, Reputation: 1307
    Expert
    		  
    #2

    Oct 27, 2010, 11:20 AM

    I believe that only active employees are allowed to participate in the company's 401(k) plan, which really is a form of deferred compensation. Once you are retired you are no longer an employee, and therefore not eligible. However, to be sure about this I suggest you call the administrator of your company's plan and ask this question directly of them.

    Another option is to fund an IRA using this money,
    CPA2010's Avatar
    CPA2010 Posts: 4, Reputation: 1
    New Member
    		  
    #3

    Oct 28, 2010, 02:37 PM
    ebaines-

    I'm a self employed insurance agent who has for the past 20 years fully funded a SEP IRA account. From my research I believe if I retire at the end of 2010 and receive Deferred Compensation through 2014 I will be able to continue my IRA contributions during that time considering those payments are previous earnings which I will be receiving over the course of the next 3 years and paying full self-employment tax on as well.

    The only sticking point I see in IRS.gov documents is that earnings are classified as coming from services or sales and not from investments. I do believe these deferred compensation fit that criteria as I earned them in previous years and am now receiving them. The insurance company providing the deferred compensation does not guarantee payments and certain non-compete agreements need to be met to receive the full amount of compensation.

    Let me know if this sounds correct.
    ebaines's Avatar
    ebaines Posts: 12,131, Reputation: 1307
    Expert
    		  
    #4

    Oct 29, 2010, 06:37 AM

    OK - so the question isn't about contributing to a 401(k), but instead whether deferred compensation can be used to fund an IRA, right? The answer is no, at least according to: Traditional IRA:
    In order to contribute to a traditional IRA, you must have some form of compensation. Compensation includes wages, salaries, bonuses, and commissions. Compensation does not include deferred compensation or payments such as interest income and stock dividends you might have received during the year.

    However, all may not be lost. If the deferred compensation plan is qiualified to IRS code 457(b), then your best course of action may be to roll it directly to an IRA - that way you avoid any taxes (for now). So call the plan admin and ask if the plan is qualified to IRS code 457(b). More info here: How to Convert a Deferred Compensation Retirement Fund to a Roth IRA | Small Business - Chron.com
    CPA2010's Avatar
    CPA2010 Posts: 4, Reputation: 1
    New Member
    		  
    #5

    Oct 29, 2010, 09:01 AM
    Comment on ebaines's post
    It is not qualified. I just would like to think if you are paying self employment tax on all this money you should be allowed to utilize some tax relief programs. Another piece of the deferred compensation is something called extended earnings.
Not your question? Ask your question View similar questions
 

Question Tools Search this Question
Search this Question:

Advanced Search

Add your answer here.


Check out some similar questions!

Income and 401K contribution on 1040NR [ 8 Answers ]

I am a Canadian working in Michigan. On my W2 I have a value in Box 1 for tips and wages (ie $40,000) and a value in Box 3 Social Secuirty Wages of $43,000. In Box 12 - code (D) there is a value of $3,000 which represents a 401K contribution. Please advise which value I use for income on my...

Severence and 401k Contribution [ 1 Answers ]

It was my understanding that since my previous employer contributed into a previous employee's 401k that they should do the same for me. They withhold state, federal, medical insurance, etc. from my serverence check but refuse to allow me to contribute to my own 401k therefore they also do not...

Excess contribution 401k, 1099R 2007 coded for 2006 contribution [ 1 Answers ]

Excess contribution 401k, taxpayer received 1099R 2007 Year coded for 2006 contribution Does this go on 2007 or 2006 return?

Excess contribution to a traditional 401K [ 1 Answers ]

I was doing my taxes and found that I had contributed too much to my traditional IRA $4595.00 or 595.00 too much. Now I have to pay a 6% penalty every year until that money is withdrawn... Won't I get a penalty if I remove money from my IRA? What is the best solution to this problem?? ...

401K Contribution Timing [ 2 Answers ]

I have an employer who has been deducting my 401K contributions from each paycheck since March of this year. None of these deductions are showing up in my 401K account on the third party administrators website and they don't know anything. I've trolled the IRS website, but have not been able to...

View more questions Search