IRA Contribution & 401(k)

[MGOAdmin]

I have a client that set up a retirement plan in October 2018. One of the employees makes $400,000 and had already contributed to his deductible IRA in early 2018. Since the employee is eligible for the plan, does this make his IRA contributions made in 2018 retroactively non-deductible?

[Lou S.]

If he is considered benefiting under the plan than his IRA contribution would not be deductible  when he files his tax return.

[Larry Starr]

1 hour ago, MGOAdmin said:

I have a client that set up a retirement plan in October 2018. One of the employees makes $400,000 and had already contributed to his deductible IRA in early 2018. Since the employee is eligible for the plan, does this make his IRA contributions made in 2018 retroactively non-deductible?

Actually, he did not contribute to his "deductible" IRA.  He simply contributed to his regular IRA. Whether it is deductible or not depends on a number of factors that show up when he files his tax return.  And in this case, that little box that was checked on his W-2 says he won't be able to deduct this contribution on his return, so it turns out to be a non-deductible IRA contribution with the attendant additional IRS form and recordkeeping requirements.

[Flyboyjohn]

Mere eligibility for the 401k is not enough to make the client an "active participant in an employer plan" for IRA deduction purposes.

If he doesn't contribute or receive any employer contributions his IRA should be deductible.

[Appleby]

On 11/15/2018 at 5:34 PM, Flyboyjohn said:

Mere eligibility for the 401k is not enough to make the client an "active participant in an employer plan" for IRA deduction purposes.

If he doesn't contribute or receive any employer contributions his IRA should be deductible.

Agree. To add:

• Even if he receives/makes no contribution under the 401(k) and he is married, his eligibility to claim a deduction could depend on whether his spouse is an active participant under an employer provided retirement plan.
• If only employer contributions are made to the plan, his active participant status ( considered by an employer plan status) depends on whether the employer contribution is made this year or next year.