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This is challenging one to figure out.

  • I had a job that is ends 11/30/2014 that offered a 401k.
  • I have a new job that doesn't offer a 401k.
  • I'd like to max my IRA this year to avoid tripping a new bracket.
  • I make over the typical IRA deduction limits when "covered by a plan at work."

Now that I'm not offered a 401k at the new job, even if just for a few days at the end of the year, can I now deduct the IRA contributions as though I am not covered by a plan at work?

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

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No. You are "covered by a plan at work" if you were covered for any part of the year, even if for one day.

(In fact, there are people who stopped working at a job that offered a plan in the December of the previous year, but since they got paid on the 1st of the month, their last paycheck was in January, they were considered to have been covered, even if they did not actually have a job that covered them during the year.)

  • Woah! Thanks for that last detail. I found IRS publication 590 which spells out what you mentioned about any coverage during that tax year, so I was headed back to answer my own question for the sake of the community. But, that last part is hugely important. I was considering having some of my pay extended into next year to avoid a tax bracket hit, so good thing I thought this through! – OldGreg Dec 14 '14 at 22:28
  • @OldGreg: Well, that last part was what I heard happened to somebody. It makes sense since whether you were covered is generally determined by the checkbox on the W-2, and this person got a W-2 for that year from that company with the box checked because they got paid during that year and they were able to make a 401k contribution on that paycheck (even though they were not actually working for the company during that year). If some expert can find some law that says they shouldn't count as being covered, I will go back and tell that person. – user102008 Dec 14 '14 at 23:53
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    OldGreg, what do you mean by tax bracket hit? You do realize that you only pay the higher bracket tax rate on the amount that exceeds the previous bracket, NOT your total taxable income. What you said makes it seem as though you are trying to avoid a step change in total tax, this is most certainly not how the tax brackets work. Each bracket is merely a slope change for the additional income received inside that bracket. – Jake Jan 27 '17 at 2:11

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