IRA deductibility limits and 403(b)
Background: I have a 73 year-old prospective client who would like to open and fund a traditional IRA. He’s single and makes $100,000 a year, and his main reason for opening the account is to get the tax deduction on his contribution. The issue is that he also has a 403b at work which “he says” that since he is over 701/2 he is no longer able to contribute to. In addition, he’s single with such a high income, he’s above the limit for the phase-out on tax deductible IRA contributions.
Couple questions:
With the new rules aren’t 403(b) contributions still able to be made after RMD age?
If contributions aren’t really able to be made after the new 72 RMD age and he has this 403(b) at work but doesn’t contribute to it – would he be classified as not covered by a plan? And then be eligible for the full deduction on a Traditional IRA?
Thanks for any insight!
Permalink Submitted by Alan - IRA critic on Fri, 2021-01-22 19:19
403b contributions have always been allowed without age limit under IRS rules, but a plan may not allow them. What the Secure Act changed was allowing TIRA contributions without age limit like all the other plans. If no contributions including forfeitures are added to his 403b plan balance for the year, he is NOT treated as an active participant, his W-2 should not have a check in the retirement plan box, and he can make the deductible TIRA contribution.
Note: Many 403b plan sponsors also provide DB plans, so his TIRA deduction could also be derailed if he is considered a participant in a DB plan. While he could wait until he receives his W-2 for the prior year and make the TIRA contribution then, if he wants to know sooner if he will be treated as a active participant for any qualified plan of the employer, he should contact the plan administrators. In other words, if either he or the employer makes contributions to any plan, he is an active participant.