Deferred Compensation Plan and IRA Deductibility
Client and spouse have no other retirement plan besides a 457 deferred compensation plan. Are these plans considered retirement plans to determine deductibility of IRA contributions?
Client and spouse have no other retirement plan besides a 457 deferred compensation plan. Are these plans considered retirement plans to determine deductibility of IRA contributions?
Permalink Submitted by William Tuttle on Tue, 2021-11-09 00:50
457b plans are excluded from consideration of active participant status.
Permalink Submitted by Alan - IRA critic on Tue, 2021-11-09 00:57
No, they are not, and the instuctions for Box 13 of Form W-2 (indicates participation in workplace plan for deduction purposes) state that 457 plan participation is not to be reflected by checking Box 13. When the W-2 data is entered into tax programs, if Box 13 is blank the program should not apply any income limits in determining the IRA deduction. Notice 87-16 copied below QA 6 further explains.
“A6: An individual has an amount deferred for a taxable year in a plan described in section 457 of the Code. Does participation in such a plan cause the individual to be an active participant?A: No. Section 219(g)(5) of the Code specifically exempts unfunded deferred compensation plans described in section 457 of the Code from the definition of relevant plans for purposes of determining who is an active participant. Participation in any ret irement plan established by a state or local government, other than a plan described in section 457 of the Code, is active participation for purposes of section 219(g)(5) of the Code.”