topic Re: IRA deduction limits for recent retiree in Retirement tax questions

IRA deduction limits for recent retiree

Nate_EastTN — Wed, 11 Feb 2026 10:05:41 GMT

I retired at the end of December 2023 with a company where i participated in a 401K plan. However I received my last pay check in January 2024 and it included my normal 401K pre-tax contribution. Does this mean I'm considered an Active Participant in a 401K plan for 2024 even though I retired at the end of 2023? I have a separate traditional IRA that I would like to contribute to in 2024 from earned income I have in 2024. But, will I be subject to the MAGI income restrictions ($143K for Married filing joint) If I want to deduct my 2024 IRA contributions from my 2024 income because i had that one paycheck in Jan 2024?

Re: IRA deduction limits for recent retiree

Opus 17 — Sat, 27 Jul 2024 23:11:09 GMT

Yes. Pay counts when you are paid, not when it is earned. If you got a check in 2024, you will get a W-2 for 2024, and if you had 401k participation on your 2024 check, your W-4 will indicate that you are a participant for 2024.

Re: IRA deduction limits for recent retiree

Nate_EastTN — Sun, 28 Jul 2024 00:13:46 GMT

Thanks for replying. My real question is does this mean that if I want to contribute $8000 to a traditional IRA in 2024 I will not be able to deduct the contribution from taxable income if my income was greater than $143K (married filing jointly). This seems crazy since I was never employed in 2024 with a company that offered a 401K plan. I just had that last paycheck from 2023. Thanks for your help.

Re: IRA deduction limits for recent retiree

Opus 17 — Sun, 28 Jul 2024 03:41:12 GMT

@Nate_EastTN wrote:

Thanks for replying. My real question is does this mean that if I want to contribute $8000 to a traditional IRA in 2024 I will not be able to deduct the contribution from taxable income if my income was greater than $143K (married filing jointly). This seems crazy since I was never employed in 2024 with a company that offered a 401K plan. I just had that last paycheck from 2023. Thanks for your help.

Per the IRS definition, you are covered by a plan if "any contributions or forfeitures were allocated to your account for the plan year ending with or within the tax year."

https://www.irs.gov/retirement-plans/are-you-covered-by-an-employers-retirement-plan

If the contribution was made to your account in 2024, you are subject to the income limitation for deducting contributions. If the contribution was made to your account in 2023, and the employer "plan year" also ended on 12/31/23, then I suppose you are not "covered" in 2024. However, if the "covered" box is checked on your 2024 W-2, turbotax will apply the income limit, and if you file manually, the IRS will apply the limit, and you will have to write a convincing letter of explanation. Be sure to save copies of your 2023 and 2024 form 5498s for the 401ks (if you have them) to demonstrate when the contributions were made.

Also, remember that if you have compensation from working, you may be able to contribute to a Roth IRA which has a higher income limit -- the contribution is not tax deductible, but future withdrawals are not taxable as long as you follow the 5 year rule. Or, you can make a non-deductible contribution to your traditional IRA, which creates a partial non-taxable basis in the account that must be tracked. It's more paperwork, but it is an allowable way to take advantage of the tax-deferred growth from an IRA.

Re: IRA deduction limits for recent retiree

Nate_EastTN — Sun, 28 Jul 2024 12:43:02 GMT

Thank-you so much for taking the time to reply and including the link to the IRS regulation, as well as your advice moving forward. I think I understand it now (even though i don't like it ... ha ha).