IRA deduction when receiving retirement
My wife and I are both retired and receive a pension check each month from our retirement system (which was a defined benefit plan through a government entity). Additionally, my wife receives Social Security. Although I continue to work part time for which I receive earned income and a W-2 in addition to my retirement, I do not now contribute to any retirement plan.
1. Are we still eligible to contribute to a traditional IRA ($5,000 each)?
2. Are we precluded from deducting our IRA contributions ($10,000) because we receive a retirement check every month from our retirement system?
Thanks.
Permalink Submitted by Alan Spross on Sat, 2008-02-09 20:31
For years prior to the year of attaining age 70.5, you qualify to make TIRA contributions up to the extent of your earned income, or 5,000 at age 50, whichever is higher. A spousal contribution is also possible for your non working spouse for years prior to 70.5 using your earned income. To verify that you are not a plan participant, check your W-2 to verify that the Retirement Plan box is not checked. If the box is checked, then there will be limits to the amount you can deduct, and also your spouse as a SS recipient.
Receiving a defined benefit pension check does NOT constitute participation in a retirement plan, and will not cause the box on the W-2 to be checked unless you are working for the same firm and accruing more credits toward your pension, or working elsewhere and are considered a plan participant under their plan.
Permalink Submitted by Earl Bradley on Sat, 2008-02-09 20:59
Thanks Alan. The Retirement box is not checked on my W-2 and our retirement income was reported on 1099-R forms so I guess we’re good to go. I’ll be opening the IRA’s immediately. Thank you for your quick response.