IRA Contribution restriction

Submitted by Kevin Vasilik on Mon, 2013-03-18 18:44

I was speaking with my 61 year old brother who was called back to work by his employer that he retired from in year 2011 and receives a defined benefit pension income from. His employer hired him back temporarily in 2012 and his 2012 AGI with his spouse on their 1040 was about $144,000. That includes his pension and W2 income. His spouse dos not have any earned income or pension. For year 2012, his employer didn’t make any new contributions to his Pension and he is not eligible to participate in a 401k or other pension. He received both W2 and Pension income for 2012.

He did his Tax return on Turbo Tax which instructed him that he was not eligible to contribute to a tax deductible IRA but was able to make a contribution to Traditional IRA for his Spouse.

I believe that he is eligible to contribute to an IRA for year 2012 and that Turbo Tax probably answered that question based on his answering of the question that he participates in a employer sponsored pension plan. When in actuality he does not participate in an employer sponsored pension plan except to the extent that he receives a pension.

Can he make a tax deductible contribution to an IRA for year 2012?



Submitted by Alan - IRA critic on Mon, 2013-03-18 19:34

The IRS will go by the W-2. If box 13 (Retirement plan) is checked, the IRA deduction will be disallowed. It’s possible that the box is checked in error or there may be other reasons the box is checked. Is he sure that is is not a plan participant for any of their plans even though his pension did not change right away? If Box 13 is checked in error, he should request a corrected W-2 since Box 13 is producing the Ttax response denying his deduction.

Submitted by Martin Helmer on Fri, 2013-03-22 15:23

Mere eligibility requires the X in the active participant box for a DB plan.  It doesn’t necessarily matter if no additional accrual has been gained, unless accruals have stopped for everyone.  This happens a lot with part-time teachers, even those who work only a day or two during the year.  Thry are ‘eligible’ under the plan provisions, though they have no prospect of ever receiving anything back except for their own contribution, if any.

Submitted by H S on Sun, 2013-12-08 21:08

After retiring several years ago with a defined benefit pension, I returned to work part-time in 2012 for the employer from whom the pension is received.  The work has no affect on the pension.   I made an IRA contribution, but since the W-2 box for Retirement plan was checked, the tax software product calculated a partial IRA deduction.Is a retiree under a defined benefit considered an active participant for deductibility purposes, or in this situation the W-2 box not being done correctly?

Submitted by Alan - IRA critic on Mon, 2013-12-09 03:14

  • The participant box should not be checked for receipt of DB pension benefits, but if you also worked even a day in the same year, the box must be checked. Therefore, the part time work is what correctly triggered the box to be checked.
  • Your modified AGI is in the phase out range, so you get a partial deduction. Before 10/15/2013 you could have removed the non deductible portion of the contribution or perhaps recharacterized it as a Roth contribution, but now your only option is to file Form 8606 reporting the non deductible portion of your contribution. Since you probably have filed your 1040 for 2012, if you omitted the 8606 you can send it in by itself without a 1040X.

Submitted by Martin Helmer on Mon, 2013-12-09 16:17

In order to definitively check the w-2’s correctness.  Some plans require the employee to complete a year of service when he returns, in order to regain eligibility.  Also remember that active participation uses the plan year end–If the plan year begins in 2012 and ends in 2013, the person is active for 2013.

Submitted by H S on Sun, 2016-10-02 18:28

I am following up on a question I posted a couple of years back , to provide more specifics.   My state government has a defined benefit plan that freezes benefits upon retirement.   If a retiree returns to work part time in a later year, as a method of helping fund the retirement system the working retiree is required to make the same retirement contribution as an active employee (again, with no impact on benefits).   The W-2 Active Participant box is checked for all employees, including working retirees.  A web search shows the New York (not my state) Comptroller General issued instructions that they will automatically check the Active Participant box by default, but will rely on agencies to identify and inform them of employees who have retired in a previous year so Box 13 can be unchecked.  I am wondering if my state’s situation is the same as NY’s, without a system in place to uncheck the box for working retirees.   

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