topic My job offers a 401k, but I want to use a traditional IRA instead. If I opt out of the 401k, will I be able to get a deduction for contributions to the IRA? in Retirement tax questions

My job offers a 401k, but I want to use a traditional IRA instead. If I opt out of the 401k, will I be able to get a deduction for contributions to the IRA?

geco1225 — Tue, 04 Jun 2019 23:06:00 GMT

I am basing my question on this information. https://www.irs.gov/retirement-plans/are-you-covered-by-an-employers-retirement-plan

My understanding is that, if my employer has a 401k plan, but nothing is allocated to my account, I should still be able to get a deduction for contributions to my IRA.

If your employer has company matching, you're probably be...

fanfare — Tue, 04 Jun 2019 23:06:01 GMT

If your employer has company matching, you're probably better off with 401k. Also you can put more per year into a 401k.
On the other hand, you can't self-direct a 401k as you can with an IRA.

When you have a retirement plan at work, you can make non...

fanfare — Tue, 04 Jun 2019 23:06:02 GMT

When you have a retirement plan at work, you can make non-deductible contributions to your self-directed IRA. You will have a basis (Form 8606).

If you are covered by a plan, then your eligibility to ma...

Opus 17 — Tue, 04 Jun 2019 23:06:04 GMT

If you are covered by a plan, then your eligibility to make deductible IRA contributions depends on your income and filing status according to the links here. https://www.irs.gov/retirement-plans/ira-deduction-limits.

You are covered if a plan is available and you are eligible to participate, even if you choose not to participate.

If you go to that link, and click the "covered by a retir...

geco1225 — Tue, 04 Jun 2019 23:06:05 GMT

If you go to that link, and click the "covered by a retirement plan" hotlink, it says that "You’re covered by an employer retirement plan for a tax year if your employer (or your spouse’s employer) has a: Defined contribution plan (profit-sharing, 401(k), stock bonus and money purchase pension plan) and any contributions or forfeitures were allocated to your account for the plan year ending with or within the tax year..."

Doesn't this suggest that, if no contributions are made to the account, I am not "covered"?

I agree with Critter#2. If no allocations are made to th...

dmertz — Tue, 04 Jun 2019 23:06:07 GMT

I agree with Critter#2. If no allocations are made to the account for the plan year ending in or with the employee's taxable year, the instructions for Form W-2 indicate that the employer is not to mark box 13 Retirement plan. Allocations would include forfeitures by other participants, so it's not just employee and employer contributions. Since the IRS goes by box 13 Retirement plan, one would need to make sure the employer is marking or not marking box 13 Retirement plan as is appropriate for the circumstances.

Re: If you are covered by a plan, then your eligibility to ma...

mefree — Fri, 30 Oct 2020 16:59:08 GMT

I also disagree with @Opus 17 ...I don't think you are considered covered by a defined contribution plan if you opt out

https://www.irs.gov/retirement-plans/common-errors-on-form-w2-codes-for-retirement-plans#:~:text=Form%20W%2D2%2C%20Box%2013&text=You%20should%20check%20the%20retirement,IRC%20Section%20403(a).

Form W-2, Box 13
The “Retirement plan” indicator in Box 13 shows whether an employee is an active participant in your company’s plan. If this box is checked, it lets the recipient know that depending on their filing status and modified adjusted gross income, they may not be entitled to a full deduction for their traditional IRA contributions. You should check the retirement plan box if an employee was an “active participant” for any part of the year

Active participant
Generally, an employee is an active participant if covered by a:

defined contribution plan (for example, a 401(k) plan) for any tax year and is credited with any contributions or forfeitures, or
defined benefit plan for any tax year that the employee is eligible to participate.