Left employer with 401(k) plan in March 2021, now self employed but not eligible to contribute to IRA

[caehlers]

Previous employer W2 included just over $1,000 in deferred income for 401(k) contribution.  Left that employer for self-employment.  When I attempt to elect additional IRA contributions to reduce income, it states that because our MAGI is over the limit of $125,000 while being covered by a retirement plan at work.  Again, I'm self-employed, so I am not covered by a retirement plan at work (although wife is).  Am I missing something?

[ErnieS0 · Accepted solution]

If you were covered by an employer plan for part of the year, you are usually considered to be covered for the whole year even if you left the company.

The IRS says: "Generally, you are covered by a defined contribution plan for a tax year if amounts are contributed or allocated to your account for the plan year that ends with or within that tax year."

See Are you covered by an employer plan?

How about a SEP?

Self-Employed persons can set up and contribute to a tax deductible Simplified Employee Pension Plan (SEP) as late as the due date (including extensions) of your business income tax return for the year you want to establish the plan.

For more info: Simplified Employee Pension Plan (SEP)

[caehlers]

@ErnieS0 Great information; so even though I can set up or contribute to an SEP, I would not be able to deduct the amount contributed for 2021, but I could do so for 2022 moving forward, correct? 

[JohnB5677]

Yes, you can make a SEP contribution in 2022 for 2021.

SEP-IRA contributions can be made for the prior year up until the tax filing deadline.

You can set up the account and pay into it until April 15, and deduct it for the previous year.

[ErnieS0]

No @caehlers. The good think is that a SEP plan works like an IRA. you can set one up and contribute in 2022 for the 2021 tax year!

[caehlers]

@ErnieS0 @JohnB5677  So that makes a lot of sense, but TurboTax is saying that my MAGI is too high to deduct from a second IRA; am I doing something wrong?  It's basically combing my wife's income and my income to come up that conclusion. 

[JohnB5677]

Yes, you can set up a SEP for your self-employed business even if you participate in your employer's retirement plan at a second job.

From:  SEP Plan FAQs