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Plan Participation and IRA Contributions
Plan Participation and IRA Contributions
“A client of mine who participates in a 401(k) plan at work was told by his tax preparer that he cannot make an IRA contribution. Is that correct?”
ERISA consultants at the Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans. We bring Case of the Week to you to highlight the most relevant topics affecting your business.
- If your client is under age 70 ½ and has earned income for the year of contribution, he is eligible to make a traditional IRA contribution, provided he does so by the contribution deadline. But because he participates in a 401(k) plan, the contribution may not be fully tax deductible.
- Deductibility of a traditional IRA contribution depends on whether the individual (or his or her spouse) is an active participant in an employer-sponsored plan, tax filing status and the amount of modified adjusted gross income (MAGI) for the year (IRC Sec. 219(g).
Deductibility of a 2016 traditional IRA contribution when the individual (or spouse) is covered by a workplace retirement plan
| IF your filing status is … |
AND your modified adjusted gross income (modified AGI) is … |
THEN you can take … |
| single or head of household |
$61,000 or less | a full deduction. |
| more than $61,000 but less than $71,000* |
a partial deduction. | |
| $71,000 or more | no deduction. | |
| married filing jointly or qualifying widow(er) |
$98,000 or less | a full deduction. |
| more than $98,000 but less than $118,000** |
a partial deduction. | |
| $118,000 or more | no deduction. | |
| married filing separately2 | less than $10,000 | a partial deduction. |
| $10,000 or more | no deduction. | |
| Not covered by a plan, but married filing jointly with a spouse who is covered by a plan | $184,000 or less | a full deduction. |
| more than $184,000 but less than $194,000*** |
a partial deduction. | |
| Source: IRS 2016 IRA Contribution and Deduction Limits | $194,000 or more | no deduction. |
*$62,000-$72,000 for 2017; **$99,000-$119,000 for 2017; and ***$186,000-$196,000 for 2017
Conclusion
If a person meets the age and income requirements for a year, he or she is eligible to make a traditional IRA contribution by the deadline. But the tax deductibility of the contribution will be affected by participation in a workplace retirement plan, tax filing status and MAGI.
