New PSP, (k) and deductible IRA ’14

Submitted by Tom Auty on Wed, 2015-04-08 17:19

We have an employer that established a 401(k) PSP plan in December of 2014. There were no deferral contributions for 2014. The Employer will be making a profit sharing contribution prior to April 15, 2015 for the 2014 plan year. Can the individuals still make a deductible IRA contribution for 2014?



Submitted by Alan - IRA critic on Wed, 2015-04-08 20:17

If the 401k contribution is FOR the 2014 plan year, the individuals receiving the contribution are considered active participants and their W-2 should have the retirement plan box checked. What does their W-2 indicate?

Submitted by Tom Auty on Wed, 2015-04-08 20:53

Retirement plan box is NOT checked

Submitted by John Peterson on Wed, 2015-04-08 21:59

The W-2 was completed correctly, the individual was not an active participant in the company plan for 2014 and can make a deductible IRA contribution by 4/15

Submitted by Alan - IRA critic on Wed, 2015-04-08 22:52

I agree. As a PSP, the contribution is deemed to be discretionery. See attached:

Profit-Sharing Plans and SEP IRAsWith plans to which contributions are discretionary, such as profit-sharing plans and SEP IRAs, employees are considered active for the year in which the contributions are actually deposited to the employees’ accounts – even if the contributions apply to the previous year. The reason for this rule is that it is usually impossible for employers to guarantee contributions to these plans for any particular year.To demonstrate, let’s say your employer sponsors a profit-sharing plan, to which it contributes 10% of eligible compensation for the 2012 tax year. But the contributions are deposited in 2013. Employees are considered active participants for 2013, the year in which the contributions are actually deposited to their accounts.Read more: http://www.investopedia.com/articles/retirement/05/032305.asp#ixzz3WlEsfHPj Follow us: @Investopedia on Twitter

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