Covered vs Eligible

Submitted by Robert Wright on Thu, 2024-02-01 13:20

My wife and I both have 401(k)s at work.
We are both eligible to participate according to the plan document but neither of us contributes.
Neither employer contributes to the plans.
So no money has gone into our plans.

My understanding is that this means we are eligible but not “covered” in respect to making deductible IRA contributions.
Our combined income if over $250,000.

So we could both make deductible IRA contributions (or Roth IRA) contributions even though we are eligible to participate in a 401(k) at work.

Is this correct?



Submitted by Alan - IRA critic on Thu, 2024-02-01 18:09

  • Your MAGI might be too high for regular Roth IRA contributions, although if you make pre tax deferrals to the 401k, it might bring your MAGI down to the point where you would qualify for Roth contributions. Depends on how much your other income exceeds 250k.
  • You are correct that if no contributions are made to the 401k by you or employer, and neither of the employers has a DB pension, your W-2 should not show you as covered participants, and you could then deduct TIRA contributions.  You might check the W-2 forms you just received for 2023 to make sure the “retirement plan” Box in Box 13 has not been checked, as that suggests that with no changes for 2024 that box will not be checked either. 

You 

Submitted by Robert Wright on Thu, 2024-02-01 18:29

Would a SEP or SIMPLE plan count towards being covered?

Submitted by Robert Wright on Thu, 2024-02-01 18:25

Thanks

Submitted by Alan - IRA critic on Thu, 2024-02-01 18:49

Yes, contributions to a SEP or SIMPLE IRA create an active participant situation, same as if contributions were made to a 401k including checking the retirement box in any W-2 issued for those receiving a W-2.

Submitted by Robert Wright on Thu, 2024-02-01 19:36

Thanks, Again.

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