Tricky IRA contribution deductibility situation

[Serge]

My wife had a 401K she contributed $1K into  between Jan 2019 and Feb 28, 2019 via her employer.

She was laid off in March 2019 and had no further 401K in her subsequent employer for the rest of the year. Her 401K she contributed up to Feb 28 was directly rolled over in her traditional IRA during the year. We then made an additional personal contribution of $6K to her traditional IRA.

Question is:  are the $6K personal contribution to her IRA qualifying for being deductible in 2019 because she did not have a 401K after March with the new employer or are the $6K not allowed because she had a 401K up to Feb and made a 1K contribution?

[DianeC958 · Accepted solution]

It depends on the amount of income you are reporting on your tax return.

If you are only covered by a retirement plan for part of the year you are subject to the income limitations for deducting an IRA contribution as if you were covered by a retirement plan for the whole year.

Link to more information about 2019 IRA Deduction Limits - Effect of Modified AGI on Deduction if Yo...

[Serge]

Indeed, we are over the threshold. Because of this we are losing over $1K in tax saving from an IRA contribution. This is more than she contributed on the 401K :(

Thank you

[dmertz]

You aren't exactly losing the tax savings.  Getting a deduction for your traditional IRA contribution means that you are deferring the income to be taxed in the future.  By being nondeductible, you get a reduction in the taxable amount of future IRA distributions, so you'll generally be saving on taxes in the future instead of on your current tax return.