401K participant rights to contrib to existing IRA
401K participant is only contributing 4% to match employer 4% because of poor market returnns. Seeks to put additional funds into exiting IRA but unsure if allowed and how much can he contrib and tax deduct. Client is below phase out range. Does spouse earnings effect phase out position?
Permalink Submitted by BruceM on Wed, 2008-08-27 17:02
The ability of one to contribute to their IRA has nothing to do with whether they contribute to their employer sponsored retirement plan or not. The only requirement to contribute to one’s IRA is that they, or their spouse, have sufficient earned income to make the contribution(s)
Because the worker is an ‘active participant’, the deductibility of traditional IRA contributions for the worker will begin phasing out at $85,000, assuming they are married filing jointly. If spouse of worker either is non-working or employer does not offer a retirement plan, then the non-participating spouse TIRA deductibility begins to phase out at an AGI of $159,000.
BruceM
Permalink Submitted by Clyde Wolf on Wed, 2008-08-27 17:27
Good input from Teachfp.
Just to clairify, the phaseouts spcified are Mocified Adjusted Gross Income, MAGI. MAGI will likely be higher than your AGI.
MAGI is AGI plus, Student Loan Interest Deduction, Tuition and Fees Deduction, Domestic Production Deduction, Foreign Earned Income Exclusion or Housing Exclusion, Foreign Housing Deduction, Excluded Savings Bond Interest, and Employer Provided Adoption Benefits line 30 of form8839.