Traditional IRA Contribution
Have a client who lost her job a few months into the year last year. She had put $2200 into her 401k through the first few months of the year. Is she allowed to make up the difference in her Traditional IRA?
Ok, so under normal circumstances, the clients MAGI is above the limit for taking a tax deduction since she was a plan participant, even if for only a few months. Are there any stipulations in any of the Stimulus Plans (including the most recent one) that may make an exemption that will allow a deduction for the 2020 tax year since she was not able to max her 401k as a result of unemployment? Thanks
The IRA deduction phaseout range for 2020 is 65k-75k MAGI if she is single. Perhaps her 2020 income has dropped enough to qualify for the deduction. None of the legislation has changed these rules. Another possibility if she has found a new position is to make a Roth contribution if her marginal rate in 2020 is lower than it will be in the future.
Alan, thanks for the response. It is actually a MFJ scenario where we are just above $150,000 in AGI, which could result in being eligible or not for the $10,200 in tax-free unemploment income. We were looking to use the IRA deduction as a way to drop us below the $150,000 threshhold. Any suggestions would be helpful, but not sure if there is too much we can do at this point.
If her spouse is not covered by a workplace retirement plan, with a MAGI of less than $196,000 her spouse could make a deductible traditional IRA contribution for 2020 by April 15, 2021.
Permalink Submitted by Alan - IRA critic on Fri, 2021-03-12 16:49
IRA contributions have separate limits from 401k plans (except SIMPLE IRAs). Client can make an IRA contribution up to 6000, 7000 if age 50+, for 2020 up to 4/15/21. Note that there are income limits for a TIRA contribution to be deductible, and also higher income limits to make a Roth contribution.