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Backstory

Last year I made 60k from earned income and 25k from moving an investment - I was forced to realize the gain even though I reinvested into a managed portfolio. All in all I'm taxed at 85k.

Problem

I gave all this info to my CPA hoping to write off as much as possible including a ~10k contribution to my IRA (5k roth, 5k simple). However my CPA told me that I can't write off the IRA contribution because the money I would be writing off came from an investment.

Question

Does this make any sense? Is there any way around this?

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  • 1
    I don't know anything about a simple IRA, but with a Roth IRA, the whole point is that the money you put in is taxed. The benefit of a Roth IRA is that the money isn't taxed when you pull it out for retirement.
    – sharur
    Commented Apr 30, 2018 at 18:48
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    Did you have any earned income, or just these capital gains?
    – D Stanley
    Commented Apr 30, 2018 at 18:54
  • 3
    Your total IRA + Roth contribution is limited to 5.5k (6.5k if you are over 50). So if you put 5k+5k in there, there is a problem to begin with.
    – Aganju
    Commented Apr 30, 2018 at 19:33
  • @DStanley 60k in regular income
    – Jacksonkr
    Commented Apr 30, 2018 at 19:41
  • 1
    Are you a W2 employee, or self-employed?
    – JTP - Apologise to Monica ♦
    Commented Apr 30, 2018 at 22:39

2 Answers 2

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  • Your Roth IRA contribution does not generate an immediate deduction (the earnings are tax favored instead).
  • Your Simple IRA contribution was likey taken out as pre-tax dollars, thus you get no additional deduction. Only an "eligible employer" with less than 100 may establish a SIMPLE IRA.
  • Your investment income is not "earned", so could not be used to fund for example a self-employed SEP IRA.
  • You did not contribute to a traditional IRA. That would have resulted in a deduction.

The "source" of the money does not matter.

See https://www.irs.gov/retirement-plans/simple-ira-plan-faqs-contributions for the IRS FAQ on the handling of a SIMPLE.

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  • 1
    "with less than 100" Might be a silly question, but 100 what?
    – TripeHound
    Commented May 1, 2018 at 6:50
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If you had ordinary income > 5k, then for the 5k you're contributing to the simple IRA, you should be able to claim that the contribution came from that income. For the Roth IRA, you contribute after-tax money, so you can't write off the money regardless of where it comes from.

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  • Simple IRA has a $12,500 limit. Nothing like a good CPA.
    – JTP - Apologise to Monica ♦
    Commented Apr 30, 2018 at 21:31
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    @JoeTaxpayer I'm not sure what the point of that comment is.
    – Acccumulation
    Commented Apr 30, 2018 at 21:37
  • A good CPA would know this, and not mislead OP.
    – JTP - Apologise to Monica ♦
    Commented Apr 30, 2018 at 21:39
  • It's not clear if OP means 'simple' as the ordinary English word for uncomplicated and here presumably traditional IRA, or SIMPLE which is an acronym for Savings Incentive Match Plan for Employees of Small Employers, a specific employer-sponsored type of IRA (as linked in the other answer) with a higher limit as @Joe says but must come from payroll and employer directly.
    – dave_thompson_085
    Commented May 2, 2018 at 17:13
  • Well that certainly changes things. And unfortunate the OP hasn’t returned to clarify
    – JTP - Apologise to Monica ♦
    Commented May 2, 2018 at 17:41

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