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Asked 1/10/2011
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Contribution to IRA deductible? Both my wife and I have 401k plans where we work. We were not able to contribute any money in 2010. After selling a vehicle in Jan. 2011, we now have money to contribute to an IRA to reduce taxable income if possible. Since we were not “active participants” in our 401-K, will any contributions to an IRA reduce our AGI? |
Answer 1/1 - Submitted 1/10/2011
The deductibility of IRA contributions does depend on whether you were covered by an employer's retirement plan at any time during the year. It also depends on your combined incomes.
I'm not 100% certain that your lack of participation is sufficient to change the AGI limits. I've seen it worded as "eligible to participate," which it sounds like you were. The big clue may come on your W-2s, where a checkmark in the retirement box will tell the IRS that the lower income limits should apply to you.
If your adjusted gross income is below $89,000, then eligible vs active participation wouldn't matter. If it's higher than that, then you might be in phase out.
IRS Publication 590 is the resource to check on this topic.
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