Need help determining precisely what is meant by "covered by a retirement plan at work" for a part-timer with income from multiple sources, 99% of which is NOT covered.

Forum|Forum|6 years ago
September 19, 2019
2 replies
0 views

Can I set up a nondeductuble IRA for my wife if she had just one day of covered employment in 2019? We are income barred from Roth IRA contributions, so I am investigating a nondeductible traditional IRA for her and then a Roth conversion.

Best answer by dmertz

IRA accounts are not deductible or nondeductible, it's IRA contributions that are either deductible or nondeductible.

Covered by a retirement plan at work means that additions are made on behalf of the employee for the company's retirement plan tax year ending with or within the tax year of the employee. The employer indicates coverage by marking box 13 Retirement plan on the employee's W-2.

With sufficient compensation, anyone can make a traditional IRA contribution as long as they have not reached the year in which they reach age 70½. The only question is whether or not the contribution is deductible, determined by a combination of modified AGI, the individual's workplace retirement coverage and the individual's spouse's workplace retirement coverage.

D

dmertzAnswer

Level 15

IRA accounts are not deductible or nondeductible, it's IRA contributions that are either deductible or nondeductible.

Covered by a retirement plan at work means that additions are made on behalf of the employee for the company's retirement plan tax year ending with or within the tax year of the employee. The employer indicates coverage by marking box 13 Retirement plan on the employee's W-2.

With sufficient compensation, anyone can make a traditional IRA contribution as long as they have not reached the year in which they reach age 70½. The only question is whether or not the contribution is deductible, determined by a combination of modified AGI, the individual's workplace retirement coverage and the individual's spouse's workplace retirement coverage.

P

ProfDudeAuthor

Level 2

Thank you for the kind, thoughtful and very prompt reply.

Yes, I understand the deductible/nondeductible issue and the income limits. My concern comes to the filing of the tax return when a single question is asked, if this is how it works, is she covered by a retirement plan at work? For one job, yes. For the other three, no. As I understand it, she is not eligible to make a traditional IRA contributions if she is covered by a retirement plan at work. I am covered by a plan at work. Thus my question.

She has earned more than $7,000 in 2019 from employers without a plan and we are between 50 and 70. She has earned precisely $100 from an employer with a plan (one day of substitute teaching).

I do not expect tax deductibility. I just want to be certain she is eligible to fund a traditional IRA in 2019 with a nondeductible contribution. If yes, then we will do this and immediately convert it to a Roth. If not, then we wait until next year and re-evaluate.

macuser_22

Alumni - Champ

@ProfDude wrote:

I just want to be certain she is eligible to fund a traditional IRA in 2019 with a nondeductible contribution. If yes, then we will do this and immediately convert it to a Roth. If not, then we wait until next year and re-evaluate.

She has earned precisely $100 from an employer with a plan (one day of substitute teaching).

You can ALWAYS make a non-deductible IRA contribution as long as either spouse on a joint return has sufficient earned compensation (her own compensation is not necessary).

I would question the employer for the one day $100 W-2 with box 13 checked. It is VERY unlikely that ANY employee or employer 401(k) contribution would have been made for one days employment and $100 of pay. I doubt that a 401(k) plan was opened for a Substitute teacher for only one days employment. The W-2 may well be in error.

See this IRS link for Traditional IRA deduction limits when covered by a retirement plan at work.

https://www.irs.gov/Retirement-Plans/IRA-Deduction-Limits

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

macuser_22

Alumni - Champ

Covered by a retirement plan is indicated on the W-2 with a check box 13. A check in that box means that the employer has determined that a contribution was applied to the plan either by the employee or employer for the *plan* year which can be different from a calendar year depending on the terms of the plan. Even if covered for only one day by any employer applies to the entire year.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

P

ProfDudeAuthor

Level 2

Okay, so if I understand it correctly, her having worked one day for an employer with a retirement plan eliminates any eligibility she would otherwise have had to contribute to a traditional IRA in 2019.