SIMPLE IRA

[RitaB]

I did a search, but you know what happened with "SIMPLE".

Wages 60,000.  Net income from self-employment 30,374, no employees, has contributed $2,600 to SIMPLE IRA and I have been directed to figure the ER match.  It's $911, correct? (Match dollar-for-dollar up to 3% of net Sch C income, per page 10 of Publication 560, chapter 3.) 

My take on this is:  He's MFS, so maybe wife is covered by retirement plan at work, otherwise this is nuts, he should just contribute to Traditional IRA, and my life would be easy.  But this is my first rodeo, so if you have another idea as to why this is a good idea, please tell me.  Obviously, he may be stepping up contributions next year.

[jklcpa]

Net income on the Sch C isn't the same as net earnings from self-employment. You have to reduce the Sch C income by the equivalent of the employer's share of FICA & Medicare taxes. In your example, is the $30,374 after applying the 92.35% to account for 1/2 of the SE tax?

[RitaB]

Yes, you are correct, how about $28,050?  Clearly, I'm not thinking exactly right at the moment.  And program is saying match is $2,600, so I didn't understand the Pub either.  Sigh.

[grmy2h]

IRS web says net earnings is amount you report on line 6 of sch SE, before you subtract any SIMPLE IRA plan contributions you make for yourself.

https://www.irs.gov/Retirement-Plans/SIMPLE-IRA-Tips-for-the-Sole-Proprietor

[RitaB]

5 minutes ago, grmy2h said:

IRS web says net earnings is amount you report on line 6 of sch SE, before you subtract any SIMPLE IRA plan contributions you make for yourself.

Correct, it's 28,050. 

[FDNY]

I come up with a match of $764.   30,374 x .9235 = 28,050 - 2600 = 25,450 x .03 = $764.

If he did the traditional IRA it would not be allowed because phaseout AGI for MFS is $10,000.

[RitaB]

8 minutes ago, FDNY said:

I come up with a match of $764.   30,374 x .9235 = 28,050 - 2600 = 25,450 x .03 = $764.

If he did the traditional IRA it would not be allowed because phaseout AGI for MFS is $10,000.

I'm getting $842 now. I had an error and it was matching the 2,600.  My fault.   Program is not deducting the $2,600 as in your calculation up there, Bill. 

Traditional IRA phases out if no active participation?

 

[FDNY]

No, only if covered by a  plan.  Why don't they just file jointly so I could go to bed.

[grmy2h]

I get 841.50  30,374 x .9235 = 28050 X .03 = 841.50

[RitaB]

3 minutes ago, FDNY said:

No, only if covered by a  plan.  Why don't they just file jointly so I could go to bed.

Seriously!! This is going to kill him, and it's the first year I've done the return, also the first year he's married.  Congratulations, I wish your wife didn't have "an issue" so you need to file separately.  She may get healed of the issue when I tell him what he owes.

[FDNY]

Yep, I just did it in the program and got the same as you and Debbie.   I'm confused about subtracting his own contribution.

[jklcpa]

The match is $842.

The only part of the simple IRA that would be subtracted to arrive at Sch C net income is the employees' share, not the share of the sole proprietor himself. To that net result, apply the 92.35%, then use the resulting net inc from SE to calc the 3% match.

The sole proprietor's contribution limit for 2015 is $12,500 and would also be allowed a $3K catch-up if he is over 50. Remember, with a simple plan it is possible to defer 100% of earnings up to that limit.

[RitaB]

Thanks, everybody, that was truly a team effort.  This guy knows nothing about what he bought here.  He was completely thrown off when I told him he'll have to pay taxes on withdrawals. 

He has been preparing his own returns, too, and it cost him $2,400 in 2014.  Will amend and slap him over the head with it.  He's bringing in 2012 pronto.  2013 whenever he has time.  I predict he will have time very soon.

[FDNY]

I'm putting in for a CPE for this thread, I learned something.   Just need you to sign it for me.

[RitaB]

44 minutes ago, FDNY said:

I'm putting in for a CPE for this thread, I learned something.   Just need you to sign it for me.

Me, too!  I will sign for both of us!  How many hours you want?

[grmy2h]

8 minutes ago, RitaB said:

Me, too!  I will sign for both of us!  How many hours you want?

Me too. I deal with a Simple IRA for my husbands S-Corp payroll, but learned now how to handle it with a Sch. C business owner.