topic Can I deduct Traditional IRA contribution if I was only covered by a 401k for a couple months and left the employer? in Retirement tax questions

Can I deduct Traditional IRA contribution if I was only covered by a 401k for a couple months and left the employer?

handsomemainedude — Sat, 01 Feb 2025 18:31:50 GMT

Hello community! In Feb. 2025 I will leave employer A where I am covered by a 401k. I made a few contributions to that 401k in 2025 (Jan and Feb only). I will be working as a W-2 contractor for employer B through an agency and I am not eligible to participate in the agency's 401k until 2026. I am also expecting to make more than the income limits for traditional IRA deductibility (of roughly $77k - $87k in 2024 - I don't know these numbers for 2025 yet as of the time of this post).

My question: Will the IRS not allow me to contribute to the IRA AND take the full deduction in this case? Will they view my participation in employer A's 401k from Jan - Feb as "being covered by an employer's plan at work" even though I will not be eligible to participate in employer B's plan for much of the year. Should I contribute to a Roth Instead?

Re: Can I deduct Traditional IRA contribution if I was only covered by a 401k for a couple months...

MaryK4 — Sat, 01 Feb 2025 18:55:47 GMT

It depends- if you were covered by a 401k for any part of the tax year, your traditional IRA deduction may be limited by your modified adjusted gross income. See IRA deduction if you are covered by a retirement plan at work - 2024 for the 2024 amounts.

"Covered by a plan at work" covers the entire tax year eve if you were only able to contribute for a shorter amount of time.

You can still make the nondeductible contributions, but it is usually better to contribute to the Roth IRA. Your earnings will not be taxable with the Roth if it is a qualified distribution.

Re: Can I deduct Traditional IRA contribution if I was only covered by a 401k for a couple months and left the employer?

Opus 17 — Sat, 01 Feb 2025 18:59:48 GMT

If you are "covered" even for a short time, you are considered "covered" for the entire year and must follow the rules and limitations for someone who is "covered" by a workplace plan. Sorry.

Re: Can I deduct Traditional IRA contribution if I was only covered by a 401k for a couple months...

handsomemainedude — Sun, 02 Feb 2025 17:26:59 GMT

Thank you @MaryK4! That is what I had feared.