Deduction of Trad IRA contribution

Submitted by MIKE KRUCHTEN on Mon, 2018-02-05 14:53

Client made a 2017 TIRA contribution for $6,500. In 2017 she worked for an employer for 1 month who offered a 401k plan and made a contribution to it. Immediately quit and new employer offers no plan. In order for her to determine the deductibility of 2017 TIRA I assume she has to follow MAGI limits for those in retirement plan thou from Feb 2017 until year end current employer offers no plan?

Her W2 shows a small 401k contribution which I feel confirms my thoughts of using MAGI limits for those in retirement plans but if she had not made the 1 401k contribution would she have been able to use MAGI limits for filer “not covered by a retirement plan” ? I often wondered if a company offers a 401k plan but client elects not to participate can they use MAGI for “not covered by a retirement plan”. How would the IRS know if not for the W2?



Submitted by Alan - IRA critic on Mon, 2018-02-05 18:12

  • The client must only be a participant for 1 day in order for Box 13 of the W-2 to be checked as a participant. For a 401k plan if the participant does not contribute but the plan makes a contribution for the year the box should be checked. The IRS does go by the W-2 Box 13 to determine if client is an active participant or not.
  • If this client cannot deduct the TIRA contribution, but does qualify for a Roth contribution it is better to recharacterize the TIRA contribution as a Roth contribution, particularly if there are gains on the contribution. A Roth contribution is always better than a non deductible TIRA contribution.

Submitted by MIKE KRUCHTEN on Mon, 2018-02-05 21:28

Does a pension plan count as a retirement plan for T IRA deductibility MAGI limits? Since the IRS doesnt go by Box 13 how does IRS validate if a client is part of a retirement plan?

Submitted by Alan - IRA critic on Tue, 2018-02-06 02:59

I indicated that the IRS DOES go by Box 13, so if Box 13 is incorrect the employee needs to have the W-2 corrected. Any qualified plan participation show trigger Box 13. A Defined Benefit plan to which the employee does not contribute should also trigger Box 13 if the employee’s wages are used to determine the amount of a DB pension.

Submitted by MIKE KRUCHTEN on Tue, 2018-02-06 18:31

Thank You for the follow up, I misread your initial response on Box 13. Appreciate the information on pension plan, always wondered how IRS knew.

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