ELIGIBILITY RULES FOR ROTH IRA CONTRIBUTIONS AND DEDUCTIBLE TRADITIONAL IRA CONTRIBUTIONS: TODAY’S SLOTT REPORT MAILBAG
By Ian Berger, JD
Follow Us on Twitter: @theslottreport
If your employer contributes to either a SEP IRA or a SIMPLE IRA, can you (the employee) also contribute to a Roth IRA?
Yes, you can make Roth IRA contributions even if you participate in a SEP or SIMPLE IRA in the same year. Active participation in a plan only matters for determining whether a traditional IRA contribution is deductible. Be aware, however, that there are income restrictions on making Roth IRA contributions.
Help! My client changed jobs mid-year and the new company does not provide a retirement plan. She has participated in her old 401(k) plan throughout this year, having contributed $15,000. Her husband fully contributes to his own 401(k) plan. My question is, since she can't continue in a 401(k) plan for the balance of this year, could she contribute $4500 into an IRA plan this year (with a tax deduction) to equal what she would have done in a 401(k) plan?
It depends. By virtue of participating in the 401(k) earlier this year, your client is considered an active plan participant for 2021. This means her ability to make a deductible traditional IRA contribution depends on her and her husband’s combined modified adjusted income (MAGI) for 2021. If their combined MAGI is less than $105,000, she can make a fully deductible IRA contribution; if between $105,000 and $125,000, she can make a partially deductible contribution; and if it exceeds $125,000, she can’t make any deductible contribution. If these income limits preclude her from making a deductible IRA contribution, your client may want to consider a Roth IRA, which has higher income limits.
Content Citation Guidelines
Below is the required verbiage that must be added to any re-branded piece from Ed Slott and Company, LLC or IRA Help, LLC. The verbiage must be used any time you take text from a piece and put it onto your own letterhead, within your newsletter, on your website, etc. Verbiage varies based on where you’re taking the content from.
Please be advised that prior to distributing re-branded content, you must send a proof to firstname.lastname@example.org for approval.
For white papers/other outflow pieces:
Copyright © [year of publication], [Ed Slott and Company, LLC or IRA Help, LLC - depending on what it says on the original piece] Reprinted with permission [Ed Slott and Company, LLC or IRA Help, LLC - depending on what it says on the original piece] takes no responsibility for the current accuracy of this information.
Copyright © [year of publication], Ed Slott and Company, LLC Reprinted with permission Ed Slott and Company, LLC takes no responsibility for the current accuracy of this information.
For Slott Report articles:
Copyright © [year of article], Ed Slott and Company, LLC Reprinted from The Slott Report, [insert date of article], with permission. [Insert article URL] Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article.
Please contact Matt Smith at email@example.com or (516) 536-8282 with any questions.