Tax deduction for an IRA contribution if I left my employer in Feb 2021

[Craig10]

At the end of Feb 2021, I was involuntarily terminated from my employer.  In January and February of 2021 I made contributions to my employer sponsored 401(k) plan. In March 2021 I performed a complete rollover of my former employer sponsored 401(k) into a traditional joint (my wife and I)  IRA account. My wife does not have a 401(k) acct. Our filing status is married- jointly filing and both of us are over 50. My questions is, are we eligible for a 2021 tax deduction if we both make a contribution to our joint traditional IRA account before April 18, 2022?

[MinhT1 · Accepted solution]

An  IRA account is an individual account. It cannot be held jointly by two spouses. Please check with your IRA administrator.

You are eligible to contribute up to $7,000 to a deductible IRA if your joint MAGI is less than $105,000 as you are covered by a retirement plan at work in 2021.

Your wife is eligible to contribute up to $7,000 to a deductible IRA if your joint MAGI is less than $198,000 as she is not covered by a retirement plan at work.

[Opus 17]

There is no such thing as a joint IRA.  It's an individual retirement account, it is owned by only one person and can never be joint.  

Unfortunately, since you were covered by an employee plan even for one payday in 2021, your ability to deduct IRA contributions is subject to the limitation for employees covered by workplace plans. 

https://www.irs.gov/retirement-plans/2021-ira-deduction-limits-effect-of-modified-agi-on-deduction-i...

You may be able to contribute to a Roth IRA.  It's not deductible now, but you don't pay tax on your withdrawals after you retire, and there are some other advantages.  Your income limits to contribute to a Roth IRA are listed here.

https://www.irs.gov/retirement-plans/amount-of-roth-ira-contributions-that-you-can-make-for-2021

Your wife may be able to make deductible contributions to an IRA in her name.   A person must have compensation from working to contribute to an IRA, but a non-working spouse can make contributions based on the compensation of their working spouse.    If she is non-working, her contribution maximum is either  $7000 ($6000 plus $1000 catch-up contribution), or the amount of your compensation from working minus your IRA contributions, whichever is less.   If your wife works, her limit for deductible IRA contributions will depend on whether or not she is covered by a workplace retirement plan.