Active Participation in a qualified plan precluding IRA contributions

[dmwe]

Box 15 on a W-2 must be checked if the employee is an "Active Participant" in a retirement plan of the employer. Leading to the elimination or cutback of deductible IRA contributions.

Is simply being eligible for participation enough to check box 15, or as some instructions state, the employee or employer must contribute on behalf of the employee or they receive forfeitures?

If the plan only has a 401(k) with a match and the employee doesn't defer, is he/she an "Active Participant"?

I'm having trouble finding this example in the regs. Thanks

[Mary Kay Foss]

If someone is eligible to participate in a 401k plan and decides not to, they are treated as a participant with a 0% deferral percentage. Thus, the box would be checked that they participate in a plan.

[mbozek]

An employee is an active participant in a 401k/PS plan if the employee receives a contribution, a forfeiture is allocated to the participant's account or the employee makes a contribution to the plan. Reg. 1.219-2(d). Merely being eligible to participate does not make an employee an active participant.

[Appleby]

mbozek is right

Mary Kay, maybe you are thinking of a defined benefit plan?

[E as in ERISA]

Mary Kay's conclusion that the person is a participant is correct for almost all other purposes -- except this question about being an "active participant" for IRA purposes.

[Guest Reywal]

Katherine- I though it was pretty clear we are discussing active participant status with respect to being able to deduct an IRA contribution.

[pmacduff]

This is from the form W-2 instructions:

Retirement plan. Check this box if the employee was an active participant (for any part of the year) in any of the following:

1. A qualified pension, profit-sharing, or stock bonus plan described in section 401(a) (including a 401(k) plan).

2. An annuity plan described in section 403(a).

3. An annuity contract or custodial account described in section 403(B).

4. A simplified employee pension (SEP) plan described in section 408(k).

5. A SIMPLE retirement account described in section 408(p).

6. A trust described in section 501©(18).

7. A plan for Federal, state, or local government employees or by an agency or instrumentality thereof (other than a section 457 plan).

For information on the active participant rules, see Notice 87-16, 1987-1 C.B. 446, Notice 98-49, 1998-2 C.B. 365, section 219(g)(5), and Pub. 590, Individual Retirement Arrangements (IRAs).

I don't have the time this minute to check out the cites^ but there they are in the instructions.................

[E as in ERISA]

Reywal --

It was clear to me that we were discussing active participant status for an IRA. I was just responding to Appleby's comment that Mary Kay was thinking of a DB plan. She clearly stated she was talking about 401(k) plans. I was just noting that hers is a very, very common error among people who work with 401(k) plans but don't work with W-2 reporting and/or IRAs.

[Mary Kay Foss]

Actually in most situations that I deal with, employees who do not defer into the 401k plan are allocated something from the employer so that the HCEs do not have to take out some of their contributions.

I would think that someone who opts out of participating but receives a contribution every year that they're eligible to participate, would be considered an active participant for W-2 purposes.

Also I think that particular box on Form W-2 is handled incorrectly more than any other box. We routinely answer IRS correspondence denying an IRA contribution based on that box when the employee was never eligible to participate (under 21, part-time, left after 2 months, etc).