Pension Plan checked on last paycheck, can't take IRA deduction

[PaulinVA]

So, I was let go in Dec of 2019.  I thought I was being smart by getting the severance payment (reported as salary) in early Jan of 2020 to reduce reportable income in 2019.

My current company doesn't have a pension plan, so I wanted to take the IRA deduction, however, I anticipate the W2 for the 2019 company's payment in 2020 will have Pension Plan checked.  Because of that, I can't take an IRA deduction.

Is there a way around this?  I may have outsmarted myself in asking for the payment in 2020.  I know I can reach out to them, just looking for a different solution.

[MissMCJ]

Are you saying that you can't take an IRA deduction on your 2020 wages for your new job because you received a pension in 2020?  As long as you also have earned income in 2020, I do not see why you would not be able to invest in an IRA.

Perhaps someone on here can clarify if you are truly ineligible for an IRA.  Have you discussed this with your financial institution?

[DoninGA]

Go to this IRS website for information on IRA deductions if you have a retirement plan at work in 2020 - https://www.irs.gov/retirement-plans/plan-participant-employee/2020-ira-contribution-and-deduction-l...

[PaulinVA]

Thanks for the reply.

No, I'm anticipating that this company, which I never actually worked for in 2020 but received a last salary payment from in January, will provide a W2 with the "Pension Plan" box checked (since they provide a 401(k) to employees), making me ineligible to deduct an IRA contribution.  Sorry for the confusion.

[fanfare]

Even if "Retirement Plan" is checked, whether you can deduct it will depend on your AGI, which, if low enough, will allow the deduction.

[PaulinVA]

Even if "Retirement Plan" is checked, whether you can deduct it will depend on your AGI, which, if low enough, will allow the deduction.

Yes, my AGI is not low enough.  TurboTax allows the IRA deduction if I uncheck the "Pension Plan" box but not if it is checked.

[dmertz]

The fact that you got a paycheck in January 2020 is not the only factor in determining whether or not you were covered by a workplace retirement plan for 2020.  Even if you got no paycheck in 2020, you would still be covered for 2020 if this employer's plan year was not a calendar-year plan but instead used a fiscal year ending with some month other than December.  If that's the case, your pay in December 2019 would have contributed to you being covered for 2020 even though it was earned and resulted in additions to the plan for your benefit in 2019.

[dmertz]

If indicating that you have a pension plan results in TurboTax removing the deduction for your traditional IRA contribution, your modified AGI for the purpose is NOT below the threshold for your filing status.  If your filing status is Married Filing Separately and you are covered by a workplace retirement plan for 2020, no deduction is permitted if your modified AGI is above $10,000.  Also make sure that you are determining your modified AGI correctly.

[PaulinVA]

 Even if you got no paycheck in 2020, you would still be covered for 2020 if this employer's plan year was not a calendar-year plan but instead used a fiscal year ending with some month other than December.

Ugh.  Good point.  That's a question for the CFO or his tax guy, then.

As to the AGI question, neither my wife nor I have a pension plan this year.  The IRS site indicates there is no AGI limit in that case.

[MissMCJ]

In your particular case, unchecking that box is correct.  If you were audited, you can explain that the pension was from a previous job and a previous year.  

[dmertz · Accepted solution]

You must enter the Form W-2 that you receive exactly as the form is provided.  If it has Box 13 Retirement plan marked, you must have that box marked on TurboTax's W-2 form.  When checking your tax return for accuracy, the IRS goes by the marking on the Form W-2 that the employer provides to you and to the IRS.

If box 13 Retirement plan is marked inappropriately on the Form W-2 that you receive from the employer, you must get the employer to provide a corrected W-2.

[MissMCJ]

Excellent point about having the form reissued without that box checked.  

[PaulinVA]

Thanks, all.

I think my original plan to reach out to the CFO and see if this can be addressed before the W2s are issued is the way to go.  

I was hoping there would be some form I could use to address this but apparently not.