I am self employed. I have a SEP IRA that I last contributed to years ago. Does this mean I am currently "covered by a retirement plan at work"? TT is prompting me to contribute to a traditional IRA.
Please view this irs link. in this link it states:
You’re covered by an employer retirement plan for a tax year if your employer (or your spouse’s employer) has a:
Here are the IRS regulations for the definition of Covered by a Retirement Plan:
You’re covered by an employer retirement plan for a tax year if your employer (or your spouse’s employer) has a:
Here is a link to the IRS above article: IRS Article on Covered by Employer's Retirement Plan.
No, it's not referring to a SEP IRA you contributed to years ago. It's referring to a retirement plan (401(k), 403(b), pension plan, etc.) offered by an employer you worked for during 2019.
Thank you for your response.
I asked because TT gave examples of “a retirement plan at work”, including “ 401k,403b, Keogh, SEP, SIMPLE, qualified pension plans , and some other situations” where “ ... you’re also considered covered”.
Thus, could you please confirm that a SEP IRA previously contributed to by a self employed person does not now make that same person considered to be “ covered by a retirement plan at work”.
Please view this irs link. in this link it states:
You’re covered by an employer retirement plan for a tax year if your employer (or your spouse’s employer) has a:
I worked for myself in 2019. A SEP IRA was established for myself a few years ago. No contribution to my SEP IRA for 2019. Why am I not considered "covered at work" for 2019 - is it simply because I will not be contributing to my SEP IRA for 2019?
Thank you DavidF (and the other David, too). I did not see the last response before I posted my followup questions above. I do see now that as no contribution made to SEP IRA for 2019, I am thus not considered covered.
If the only retirement plan you have is the SEP-IRA and if you made no contribution to it then you are not covered by a retirement plan at work.
DaveF:
To be clear, I did make contributions to my SEP IRA for some prior years. I did not make one for tax year 2019.
You indicated I am not considered covered (for 2019) if I did not contribute to my SEP IRA. Are you referring a contribution at any time, or a contribution for tax year 2019? "Not considerd covered" for tax year 2019 if no contribution to SEP IRA for tax year 2019 (or if no contribution to SEP IRA at any time)?
Here are the IRS regulations for the definition of Covered by a Retirement Plan:
You’re covered by an employer retirement plan for a tax year if your employer (or your spouse’s employer) has a:
Here is a link to the IRS above article: IRS Article on Covered by Employer's Retirement Plan.
What if you work at two places and one had a plan and one did not?
You are covered by a retirement plan at work if you were eligible to participate. If you were eligible to participate for the plan year ending with or within the tax year, you are considered covered by a plan at work.
Box 13 on the Form W-2 you receive from your employer should contain a check in the “Retirement plan” box if you are covered. If you are still not certain, check with your (or your spouse’s) employer.
The limits on the amount you can deduct don’t affect the amount you can contribute. However, you can never deduct more than you actually contribute. @jimri
Just so I am clear on you explanation , if I worked at ANY company during the year that checked the box then I am covered by a retirement plan.
Yes, if you were eligible to participate in any one employer plan, you are considered covered by a retirement plan at work. @jimrice57
Hello - I have a question about this topic this year (2021), although I have a different situation. Background: I worked in 2021, but my husband did NOT. We both made IRA contributions since I made enough at work to cover them both.
I am unsure how to answer the question on TurboTax that asks if my husband was covered by a retirement plan at work.
He did not work, so I feel like the answer should be he was NOT covered by a retirement plan at work. However, I am not sure since he was only allowed to make an IRA contribution because I worked and therefore maybe since I was covered by a retirement plan at work, he is also considered covered by my retirement plan.
Additionally, I don't think this has any bearing on the situation, but want to make sure. My husband is a military retiree who gets a military retirement, but since he no longer works (for past 2.5 years) he isn't currently covered by a retirement plan at work.
Even though an IRA is owned by an individual, the limit and deductibility for the IRA contribution depends on whether your OR your spouse if covered by a retirement plan at work.
If I remember the questions you are referring to, the first question will be for your husband (is he covered by a retirement plan at work), to which you can answer "No". The second question asks if you (the spouse) is covered by a retirement plan at work, to which you answer "Yes" (assuming that you are covered).
Please see this IRS webpage for more information.
So, if I'm retired from an employer (and collecting my pension), but did NOT work for them in 2022, I should click "Not covered". It would help if the instructions were clearer for those who retired (but still have earned income elsewhere).
Correct. To be covered by that employer's plan you had to have worked for the employer in 2022.
You’re covered by an employer retirement plan for a tax year if your employer (or your spouse’s employer) has a:
Much appreciated!
And what about if I'm self-employed and make a SEP contribution? The traditional IRA amount that TT proposes is about 3x what it says is the maximum SEP contribution I can make.
But is seems to be a Spanish barber problem (In a small village, the barber shaves every man who does not shave himself... who shaves the barber?)
If I, as my own employer, make a SEP contribution on my behalf, am I then employed by an "employer" and therefore can't make a contribution?
Ah, tax law!
Whether you count yourself as an employer or employee the company that you own can contribute to a SEP on your behalf. Although if you can contribute three times as much to a traditional IRA maybe you should do that.
Thanks!
Though the language that was quoted earlier from the IRS suggests that if one is "eligible" for an employer retirement plan, that prevents the making of a personal IRA contribution... It's not a big deal, but this just shows how hard it is to be precise about all this!
CORRECTION:
No personal IRA if you are "eligible to participate for [a defined benefit] plan year ending with or within the tax year.:
But for a SEP, SIMPLE, SARSEP, or DC plan, an amount has to be allocated/contributed.
So it looks like I can contribute to my personal IRA _instead_ of my SEP... but not both.
Turbo-Tax, so far, is letting me contribute to both, and the chances of the IRA ever noticing are pretty small, I'd say... but best to play it safe, and best to be legal where it's clear what legal is.
Seen this posted a lot and it’s fairly easy to find on the IRS site:
What is the definition of eligible to participate?
My situation is:
I work for a municipality. They contribute to a state run defined benefit pension plan; TN Consolidated Retirement System.
I have no option to contribute anything.
The employer contributes everything and it is not considered income for us. It is a benefit they provide.
For 17 years our W2s have had Box 13 Retirement Plan NOT CHECKED.
I had even inquired with HR before about why this was. They told me since we did not have any option to contribute to the pension plan and the employer funds it completely, we were not considered eligible to participate.
So my main question here is:
what makes a person eligible to participate in a defined benefit plan?
And if anyone has any further insight into my situation, I’d love to hear it.
Thanks
It appears you are eligible by the fact that you are covered by the Tennessee Consolidated Retirement System. It is not clear why your employer did not check box 13 on your W-2 as they probably should have. The TCRS is a defined benefit plan and according to the IRS you are eligible to participate in such plan whether you were enrolled or not. IRS Publication 590-A provides the following information about defined benefit plans and eligibility:
Defined benefit plan. If you are eligible to participate in your employer's defined benefit plan for the plan year that ends within your tax year, you are covered by the plan. This rule applies even if you:
- Declined to participate in the plan,
- Didn’t make a required contribution, or
- Didn’t perform the minimum service required to accrue a benefit for the year.
A defined benefit plan is any plan that isn’t a defined contribution plan. In a defined benefit plan, the level of benefits to be provided to each participant is spelled out in the plan. The plan administrator figures the amount needed to provide those benefits and those amounts are contributed to the plan. Defined benefit plans include pension plans and annuity plans.
Thus, you are eligible by virtue of the fact that you are an employee of a Tennessee municipality that offers a defined benefit plan. It does not appear that you have the option to decline to participate. However, even if you could decline to participate, you would still be considered eligible according to IRS Publication 590-A.