former contract - can i claim previous IRA deductions?

[mike 108]

Beginning on October 1, I will become a fulltime employee, after 15 years of being a self-employed contractor. 

Not knowing this was coming, I have been contributing to my IRA this year. But, at tax time, TurboTax will ask, "Are you eligible to participate in an employer's retirement plan" (or words to that effect), and I'll have to say "Yes." 

Questions:
1) Will the IRA contributions I previously made as a self-employed still be deductible when I file my '23 taxes next year? Or will they be subject to the IRS AGI limits (i.e., not able to deduct if we're covered and our AGI is above $136K)? 

2) If the contributions are deductible, how should I answer the question in TurboTax? If I say "Yes," will the software assume I've been employed for the full year? 

[tagteam]

I will page @dmertz.

Otherwise, you can contact Support.

How do I contact TurboTax? (intuit.com)

[fanfare]

whether it is deductible depends on whether your AGI falls within the deduction-allowed range.

OTHERWISE,

if you don't want to carry a Form 8606 basis, you can ask the custodian to return "Excess contribution plus earnings" before Apri 15 2024.

@mike 108 

[dmertz · Accepted solution]

1)  The answer depends on whether the plan year ends in 2023 before or after your hire date.  If the employer plan uses a calendar year, you will be considered to have been covered by the employer's retirement plan for the entire year.  Your question suggests that you are married and will be filing jointly with a MAGI of at least $136,000, so all of your traditional IRA contributions for 2023 will be nondeductible when covered by a workplace retirement plan for 2023.  If your spouse is not covered by a workplace retirement plan, the MAGI limit to be able to deduct a full annual traditional IRA contribution for your spouse will be $218,000 and will phase out entirely are $228,000.

If the plan uses a fiscal year that has an plan-year end date in 2023 prior to your hire date, you won't be covered for 2023 (unless you make self-employed retirement contributions for 2023).  You are considered covered for the year if there are additions to your account for the plan year that ends with or within that year.

2) Even being covered by a workplace retirement plan for only one day for the year makes you covered for the entire year.  Your 2023 Form W-2 will have box 13 Retirement plan marked to indicate that you are covered for 2023 if you are indeed covered for 2023.

If your MAGI is under $218,000 and you file jointly, you might consider recharacterizing your traditional IRA contributions to be Roth IRA contributions instead.