Contribution to IRA after layoff
I was laid off back in April and prior to being laid off I, participated in my firm’s 401k plan. I was recently hired by a new firm but they do not allow employees to participate in the 401K program until s/he has been there for a year. Because I was laid off in beginning of this year, and won’t be able to participate in my new plan until the end of next year, I am upset about losing so many months. My questions are: what, if anything, can I contribute in either 2008 or 2009 to an IRA and how much, if anything, can I also deduct. I seem to recall some rule about not being able to contribute to an IRA if one participates, at any point in the year, to a qualified plan at his/her employer.
I could always double and triple up on my 401K contributions next year, but I will still lose the timing aspect. I think that it is a great time to get into the market now.
Permalink Submitted by Alan Spross on Thu, 2008-10-09 01:23
I don’t think you will lose much timing. The current situation is severe, and the market may well not bottom out until next year, possibly even later. In the last recession, the market bottom was 31 months after the prior highs. Granted, all recessions are different. I believe the market bottom from the 1929 crash occurred in 1932. Even if the market puts in a bottom very soon, I doubt if you will see much recovery in the averages through year end. Bear market ralllies are typical but usually do not retrace very much of the decline.
You are correct that any participation at all in a qualified employer plan triggers the income limit to deduct your traditional IRA contribution. For 2008, the modified AGI limits where the deduction begins to phase out are 53,000 for singles and 85,000 for joint filers.
If you cannot deduct your contribution, make a Roth IRA contribution if eligible. That income limit is higher, ie 101,000 and 159,000 respectively where the Roth contribution phaseout begins.
Permalink Submitted by Clyde Wolf on Thu, 2008-10-09 01:32
Skylark157,
It is good to hear you have found new employment!
You can contribute to an IRA, but your deduction may be limited or not allowed. In IRS PUB 590 page 16, Table 1-2 has the information about dedutability based on your MAGI when you are covered by an employer plan.
The Worksheet on page 19 will help you caculate your deductable amount.
When you make a non-deductable contribution to your TIRA, be sure to complete Form 8606.
If you can not take a deduction for your Traditional IRA, you should consider contributing to a ROTH IRA. You can see the MAGI limits for filing status for contributing to a ROTH IRA on page 59.
Permalink Submitted by David Freitas on Fri, 2008-10-10 01:57
Thank you both for your replies.
I agree that we have yet to see the bottom. My goal is to fund my IRA as much as can, a little at a time much like my biweekly 401k contribution. This way I can get the cash in and use any amount of deductability that I can. That way I have the option to use that cash whenever it seams best.
Thanks again.