ELIGIBILITY RULES FOR ROTH IRA CONTRIBUTIONS AND DEDUCTIBLE TRADITIONAL IRA CONTRIBUTIONS: TODAY’S SLOTT REPORT MAILBAG | Ed Slott and Company, LLC

ELIGIBILITY RULES FOR ROTH IRA CONTRIBUTIONS AND DEDUCTIBLE TRADITIONAL IRA CONTRIBUTIONS: TODAY’S SLOTT REPORT MAILBAG

By Ian Berger, JD
IRA Analyst
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Question:

If your employer contributes to either a SEP IRA or a SIMPLE IRA, can you (the employee) also contribute to a Roth IRA?

Regards,

Alfred


Answer:

Hi Alfred,

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.


Question:

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?

Mark


Answer:

Hi Mark,

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.


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