Partial year 401k Contribution, Full year salary/severance pay
My client was terminated from his employer on June 30, 2017. He contributed to his 401K for the 1st 1/2 of the year. He has a severance package for the rest of the year equal to his previous salary. He wants to know if he can contribute to his IRA for the rest of the year.
2017 – 6 mos salary $ 74,009.91
2017 – Annual salary/severance – $148,019 (rounded)
401k Contribution – 1/2 yr = $6772.56
***IRA phase-out is 62,000 – 72,000 if have plan at work.
***How does this rule apply when employee was terminated from his job in the middle of the year? Can he still contribute up to maximum IRA contribution limits?
Kay
Permalink Submitted by Alan - IRA critic on Mon, 2017-07-03 15:40
He can contribute to a TIRA, but his modified AGI might be too high to deduct the contribution. If that is the case and if his income is not too high for a Roth contribution, the Roth would be preferable to a non deductible TIRA contribution. He can contribute 5500 (6500 if age 50 plus) to a TIRA or Roth IRA if MAGI is not too high for the Roth contribution. The partial year 401k contribution has the same effect as if the amount contributed was the entire year’s contribution.