Reduce MAGI for 2020 for tax credit

[mklichtscheidl]

Filing joint, we need to reduce our AGI to qualify for federal unemployment tax credit.  I have an employee sponsored retirement plan (401k and pension) my spouse does not.  Current rules do not allow us to contribute to my 401k to reduce the AGI.  Can my spouse open a 401k and we contribute to that allow us to reduce our AGI

[Hal_Al · Accepted solution]

Q.  Can my spouse open a 401k and we contribute to that allow us to reduce our AGI?

A.  No.  A 401k can only be opened at work if the employer has such a plan.  Even if spouse's employer had a plan, the contribution must have been made in 2020.

Your spouse may be able to open an IRA, by April 15, 2021, and still have the deduction count for 2020. The fact that you have a workplace plan (even though the spouse doesn't) restricts the deduction amount.

See:   2020 Traditional IRA Deduction Limits at:

https://www.investopedia.com/retirement/ira-contribution-limits/

[mklichtscheidl]

So I wasn't correct in my question.  I meant to say my spouse could open an IRA and contribute to it for 2020 and we could reduce our AGI.  I understand that the employer would have to create a 401k and to late for that for the 2020 credit.  We calculate that 3-4k should be within the limits and enough to meet our needs.  We just were not sure if we could do this (spouse opening an IRA and contributing).

Based on the link that was provided, then this should apply?

Both employed, but spouse has been layed off due to Covid restrictions and has no IRA or 401K.  I am employed with employee sponsored retirement plan.  I assume that this selection shown meets this condition and yes we are below the 196k.

Married filing jointly and your spouse is covered by a plan at work

$196,000 or less

A full deduction up to the amount of your contribution limit