Traditional IRA contribution when eligible to participate in employer plan
In October of 2021 individual that was self employed and made TIRA contributions went to work as W2 employee for company that offers 401k. Individual did not make any contributions to the 401k (there is no match). They made more that $125k, can they still deduct their 2021 TIRA contribution since they did not put anything into the 401k with new employer?
Permalink Submitted by Alan - IRA critic on Mon, 2022-03-28 23:53
As long as no contributions from profit sharing or forfeitures were made to a 401k account for the individual for 2021, the W-2 retirement plan box should not be checked and the individual can make a deductible TIRA contribution for 2021. If that box is checked any tax program will not allow the deduction for the contribution, but of course it is always possible that the box might not be completed correctly.
Permalink Submitted by William Tuttle on Wed, 2022-03-30 11:26
I would add that if the self-employed individual made employee deferrals and/or received employer contributions to a Simple IRA/one-participant 401k for 2021 or received SEP IRA employer contributions in 2021 based on self-employed earned income. They would be an active participant for 2021 and subject to the IRA deduction income limit for 2021.
If they only received SEP IRA contributions in 2022 for the 2021 tax, they would be an active participant for IRA contributions for the 2022 tax year.