Can i take traditional IRA deduction if my company...
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lzo
Level 1

Can i take traditional IRA deduction if my company has a 401k but i don't use it?

Hi

Question - i've never contributed a cent to my 401k (i started this year - 2021).  In the past my company has contributed a few hundred dollars ($300 in 2020) and i've always withdrawn it right away, taking the penalty.

 

As i was filling out my taxes in turbotax today it asked if i'd contributed to a traditional IRA, as apparently until april 15th i can do it and still take the deduction.

 

looked it up and putting $6000 into it, will give me a $2000 deduction (!!!)

 

if that's the case i will open a traditional IRA and put $6k in, but the 401k part scares me. i have never in my life contributed $0.01 into any 401K.

 

it says "Your deduction may be limited if you (or your spouse, if you are married) are covered by a retirement plan at work and your income exceeds certain levels"

does 'covered' mean it's available to me, even if i don't contribute?  

 

want to do the right thing.  what should i do here?  if i can somehow get this deduction (the honest way) i want to. 

 

cliffnotes: my company offered a 401k but i never contributed to it, and they contributed only $300 the whole year (when i left the company - i got a 1099-R when i withdrew the $300 last year).  since the company does offer a 401k, even though i don't contribute to it, can i take the traditional IRA deduction?

4 Replies
macuser_22
Level 15

Can i take traditional IRA deduction if my company has a 401k but i don't use it?

That depends on your income and the plan.    If you are enrolled in the plan whether you actually contribute to it is immaterial if the company does and the W-2 box 13 "retirement plan" box is checked.  If it is then then  the deductible amount can be reduced or eliminated depending on your MAGI.


See this IRS link for Traditional IRA deduction limits when covered by a retirement plan at work.

https://www.irs.gov/Retirement-Plans/IRA-Deduction-Limits

 

[Perhaps you need to look further into the plan.  If the company "matches" your contributions (up to a limit) then you are throwing "free money" away by not contributing to it.]

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
lzo
Level 1

Can i take traditional IRA deduction if my company has a 401k but i don't use it?

Thank you - 

 

Two things: The 'retirement' box 13 is not checked on either W2.

 

I just started a job a few months ago that actually contributes, so i started, but thought it would be easier to start Jan 1st 2021.  The previous one did but not much, so i never used it

 

So if the box 13s are NOT checked on my W2s, then i can take the full Traditional IRA deduction?

 

I did find this in the 'learn more' section:

"However, if your employer offers a plan and you don't participate (by making contributions), you're not considered covered by that plan unless it is a defined benefit plan."

 

So looks like i can put $6k into the traditional IRA and take the $2k deduction, which i would be foolish to not do

dmertz
Level 15

Can i take traditional IRA deduction if my company has a 401k but i don't use it?


So if the box 13s are NOT checked on my W2s, then i can take the full Traditional IRA deduction?

Yes.

lzo
Level 1

Can i take traditional IRA deduction if my company has a 401k but i don't use it?

Thank you very much for your response!

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