Can I take an Ira deduction with contribution to IRA if I only had qualified 401k available to me for 3 months?

[jbkohorst]

I was only eligible for 401k after 6 months of employment and was downsized after 3 months of contributions in Sept. And had no qualified plan available.

[AnnaB · Accepted solution]

Unfortunately, if you were covered by a retirement plan at work for any part of the tax year, you are considered to have been covered the entire year.  Generally, if contributions are made to your 401(k) during the tax year (either by you or your employer), then you are considered covered the entire year.

You can still make a Traditional IRA contribution and may still be eligible for a deduction.  When you are covered by a plan at work, then there are income limits used in determining any eligible deduction.

Please refer to the link below for a table defining the income thresholds for the deductibility of a Traditional IRA when you were covered by a retirement plan through work for the tax year.

https://www.irs.gov/Retirement-Plans/2015-IRA-Deduction-Limits-Effect-of-Modified-AGI-on-Deduction-i...

[Tinchito]

Hi Anna,

What happens if the person works in a company that offers a 401k plan, but made 0 contributions for that year.

Can he/she essentially be considered as not covered by a retirement plan when it comes to the IRA contribution limits for that year?

Thanks in advance.

Martin.

[macuser_22]

@Tinchito  If box 13 on yiur W-2 is checked then you are covered by a retirement plan.

Covered by a retirement plan means that the employer has determine that you are eligible to contribute to a retirement plan whether you actually contribute or not is not material.

Being so covered has nothing to do with IRA contribution limits, it  might reduce or eliminate the ability to *deduct* Traditional IRA contributions but the contribution limits are not affected.

[bjshowalter]

This scenario seems to assume that they were covered by a 401k for the first part of the year but then lost it in the latter part. But my scenario is the opposite. For the most 7 months of the year, I had a job with no 401k. During this time, I made regular contributions to a traditional IRA. Then for the last 5 months, I had a job with a 401k. I contributed to the 401k during this time but ceased IRA contributions. It feels like I would end up being double taxed on my IRA contributions if I was deemed ineligible. 

[RaifH]

The situation remains the same regardless of what months you had the job that had an eligible retirement plan. If you are covered by a retirement plan through your job, you may be limited in the deduction you take for contributing to your IRA. 

It also does not matter whether or not you contributed to the retirement plan offered by your work. The IRS has more information on the deduction limit based on your filing status and gross income.