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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 16544
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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Hi. I am currently awaiting a lump sum payment on a contract

This answer was rated:

Hi.

I am currently awaiting a lump sum payment on a contract I have negotiated with my former employer. The contract treats me a an independent contractor and I will be paid a single lump sum for the contract period that covers October 2013-June 2014. I realize I have to pay all taxes upfront, but is there a way to make two pre-tax IRA contributions, one for 2013 and another for 2014?

Megan C :

Thank you for your question, and thanks for using JustAnswer.com

Megan C :

It is possible to make a contribution for 2013 and 2014, but you would not make your 2014 contribution until that time. You could not deduct the 2014 contribution from your 2013 tax.

Customer:

Therefore I could only deduct the 2013 amount ($6500) for a traditional IRA but I could do a Roth in 2014?

Megan C :

No, in 2014 you could still do a pretax contribution, the deduction would just come off your 2014 income

Megan C :

and the amount is only $6,500 if you are over 50

Megan C :

For everyone else it's $5,500

Customer:

Oh, but I would not get any additional income in 2014. I am getting a single lump sum this week for the whole period of the contract. Yes, I am over 60 years old

Megan C :

Okay. If you do not have earned income in 2014, then you would not be able to make an IRA contribution

Customer:

Yikes. That's what I thought. Oh well

Megan C :

The contribution limit is the smaller of your taxable compensation or $6,500 - and if your taxable compensation is 0, then that's what you could deduct

Customer:

Thank you. I just needed taht confirmation unless there was an option I wasn't aware of.

Customer:

Thanks again.

Megan C :

It's hard when you have a lump sum!

Megan C :

Could you ask them to pay you half in December and the other half in January?

Customer:

That was my mistake. Didn't consider the consequences. Yes, I am going to try for two payments. Thank you for your help.

Megan C :

You're welcome. If there's nothing else I can assist you with, please rate my response as "excellent" so that I may receive credit for assisting you today

Customer:

I will. Bye.

Megan C :

Have a great day!

Megan C and other Finance Specialists are ready to help you
Thanks for your positive rating. Please come back and visit me any time you have a tax, finance, or social security question. It was a pleasure working with you today.