401 (k) contribution and Deductible IRA
I have a client who is not allowed to contribute to his 401(k) plan due to “top heavy rules”. My question is he allowed to make a contribution to a deductible IRA since he can’t contribute to the 401 (k). I am not sure whether he would be considered an “active participant” still with regards to the 401(k) even though he is not allowed to contribute.
Permalink Submitted by Alan Spross on Mon, 2009-09-28 23:19
If he elects out of participation in advance knowing the top heavy rules, he would not be an active participant. But if he elects in and his contributions are returned or recharacterized, then he is active and his W-2 should show that in Box 13.
Of course, if married and his spouse is a participant, their joint income is subject to a limit under which neither could deduct a TIRA contribution.
One option would be to make the non deductible IRA contribution, and then convert it to a ROth in 2010. This works better if he has no large pre tax balances in his TIRA because of the pro rate rules on taxing conversions.
Here is some detail on active participation, but it does not specifially address various discrimination disqualifications directly:
http://www.retirementdictionary.com/definitions/activeparticipant