From: Charlotte , NC
Dear TaxMama,
What is the maximum amount that an individual can contribute to a 401(K)
plan if he had already claimed a full deduction for a traditional IRA?
Anu
Dear Anu,
Actually, you've got it backwards.
When you work for a company that covers you with a 401(k) plan, depending
on the level of your income, you may not be able to contribute anything to
a deductible IRA.
It makes no difference if you put $10.00 or $10,000 into the 401(k) - if
that retirement plan box is checked off on your W-2.
In fact, it gets worse, if your spouse was covered by a 401(k) or employer
plan, your deductible IRA contributions might be restricted.
You can
read more about it here.
Scroll down to Table 1-2 to see the income limits.
For instance, if you're single and are covered by an employer plan and you
earn more than $55,000, you may as well max out your 401(k) contribution because
you won't get to deduct your IRA.
I'm glad you're asking this early in the year. You still have time to pull
that money out of the IRA. Or you can leave it in and use it as a non-deductible
IRA. If you do, be sure to keep a permanent record of the fact that this year's
contribution isn't deductible.
When you pull your money out someday, you won't be paying tax on this year's
contribution - just on the earnings.
So, have I confused you enough?
Best wishes,
Eva Rosenberg, MBA, EA
