IRA contribution prior to joining company plan
Client made periodic payments to her IRA; now is planning to change jobs and will be covered by company plan in the same calendar year. Does she now need to abide by the IRA deductibility limits for 2014? Thanks.
Permalink Submitted by Alan - IRA critic on Wed, 2014-09-17 21:35
Yes, if client is covered for just a single day, they are considered an active participant for the entire year. The modified AGI limits for client’s filing status will then apply to determining if the contributions can be deducted. If MAGI is too high for the deduction, the contribution can be returned with allocated earnings, recharacterized as a Roth contribution (higher MAGI limit), or retained as a non deductible TIRA contribution. A Roth contribution is always preferable to a non deductible TIRA contribution. Another solution that can be used if MAGI is too high for a Roth contribution is to roll the pre tax IRA balance into the new plan (if plan will accept IRA rollovers), then convert the non deductible TIRA contribution to a Roth IRA tax free.