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W-2 Box 11 distributions and eligibility to contribute to an IRA

MikeB_CPA
Level 5

My client is retired and was issued a W-2.  The only amount in Box 1 represents a distribution from a nonqualified plan.  The same amount from Box 1 also appears in Box 11.  The entire amount was subject to Social Security and Medicare taxes, and this is the first time I have ever experienced this type of income being subject to SS and Medicare.  It seems to me that because the income was taxable for Social Security and Medicare that it is eligible income to qualify for an IRA contribution.

If anyone has experience with this type of situation and can offer any thoughts, I would appreciate it.

Thanks.

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1 Solution

Accepted Solutions
qbteachmt
Level 15

"and this is the first time I have ever experienced this type of income being subject to SS and Medicare"

Well, part of the problem with nonqualified plans is that they are inconsistent.

It is likely your taxpayer's plan has a vesting period that was met previously. That would explain tax deferral. It isn't earned income now.

More typically, the amount is subject to Medicare and Social Security at the time it is deferred, and then subject to income tax when distributed.

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"Level Up" is a gaming function, not a real life function.

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2 Comments 2
qbteachmt
Level 15

"and this is the first time I have ever experienced this type of income being subject to SS and Medicare"

Well, part of the problem with nonqualified plans is that they are inconsistent.

It is likely your taxpayer's plan has a vesting period that was met previously. That would explain tax deferral. It isn't earned income now.

More typically, the amount is subject to Medicare and Social Security at the time it is deferred, and then subject to income tax when distributed.

*******************************
"Level Up" is a gaming function, not a real life function.
MikeB_CPA
Level 5

Thanks very much.  This is very helpful.

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