Tax Help: Keogh and IRA Accounts

This is one in a series of tax questions from readers answered by local members of the California Society of Certified Public Accountants, to help with your 1999 and 2000 tax issues.

Q: I’ve worked for a number of years as a freelancer in the movie industry. In some years, my income would all be from my own production business, of which I’m the sole employee. In other years, my income would be from a combination of self-employment earnings and regular wages from an employer. All along, I’ve been contributing to a Keogh account (usually the maximum that the self-employment income portion of my total income would allow in any given year), as well as to an individual retirement account. I also contributed to a spousal IRA. I have been assuming that contributing to both a Keogh and an IRA account was permissible under IRS rules as long as the necessary income limits were observed. Am I correct?

A: You are. Many people get confused about IRA rules; some even assume that they cannot contribute to an IRA or Roth IRA if they have a retirement plan at work. That is not the case. Being an active participant in a workplace retirement plan only limits whether you can deduct your contribution to a regular IRA. Contributions to Roth IRAs are never deductible. If you’re in the film industry, chances are good that you are a member of a guild or trade union. If so, your wages earned as an employee probably accrue pension benefits and you would be considered an active participant in a qualified plan. That means you would be able to contribute to an IRA, but your contribution would be deductible only if your total adjusted gross income for the year was below certain limits. For 1999, the ability to deduct a contribution in this situation would phase out beginning at $51,000 for married people filing jointly; the deduction disappears by $61,000 of income. For singles, the phaseout limits are $31,000 to $41,000. Your ability to contribute to a Roth IRA would depend on your income; the contribution limit begins to phase out at $150,000 and ends at $160,000 for married people and $95,000 to $110,000 for singles. In any case, you can continue contributing to your IRAs and your spouse’s IRAs even while accruing retirement benefits through your Keogh and pension.

--Ellyn Carlson, CPA, Sherman Oaks

To find a certified public accountant, visit https://www.calcpa.org. Questions and answers will also be posted on The Times’ Web site at https://www.latimes.com/taxes.