IRA contribution Deductability
A client’s employer discontinued their 401k in January after two payroll deduction contributions to the employees account had been processed. Client makes $200,000, which is above the deductible IRA limit for an active participant. Can the client make a deductible IRA contribution now since he technically has not been an active 401k participant since January, or does the fact that a contribution was made to a 401k during the year preclude from making deductible IRA contributions until the 2019 tax year? Does the fact that he was an active participant for one month mean that he will be considered an active participant for the entire year?
Permalink Submitted by Alan - IRA critic on Mon, 2018-08-13 23:03
The W-2 should check the retirement plan box for active participation if a contribution was made at all for the year. Termination of the plan will also cause modified AGI to be even higher, and if too high for a deductible contribution, then a Roth is the next preferable choice. If too high for a Roth as well, then a ND TIRA contribution is the last choice.
Permalink Submitted by Jeff Beebe on Tue, 2018-08-14 13:06
So if an employee is an active participant for just one day, and their annual income is above the phaseout limit, they are ineligible for a deductible IRA for the entire year?
Permalink Submitted by David Mertz on Tue, 2018-08-14 13:18
Correct. They are ineligible for a deduction for the TIRA contribution.