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Discussion Forum Index --> Tax Questions --> Individual ira with company 401k
Bobkim (talk|edits) said:
| 14 January 2007
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| Can someone take out an IRA if their company had a 401k plan but they did not participate in it? Thank you.
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Jdugancpa (talk|edits) said:
| 14 January 2007
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| Yes, but you didn't really ask what you really want to know. I think your question is, can an individual make a deductible IRA contribution if his employer has a 401k but he did not participate in it. The answer to that is also yes, although I have seen W-2's come to me where the box was checked indicating the employee was covered by a retirement plan even though he in fact was not covered. If that box is checked, you should instruct your client to request a revised W-2.
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Deback (talk|edits) said:
| January 14, 2007
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| Revised response: If the company offers a defined benefit retirement plan, and if the employee is eligible to participate in this plan, but the employee does not elect to participate, the employee is considered an active participant of the retirement plan (and the retirement plan box on the W-2 needs to be checked and should not be revised). See W-2 Instructions, page 13, under Retirement Plan, for further details. This response doesn't apply to the question asked and is just an extra tidbit of information.
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Sw (talk|edits) said:
| 14 January 2007
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| Doesn't it depend on income? If were talking about a regular IRA.
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Death&Taxes (talk|edits) said:
| 14 January 2007
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| Deb's opinion is buttressed by http://www.ustaxcourt.gov/InOpHistoric/colombell.SUM.WPD.pdf This November 2006 decision may seem unfair, but it is settled opinion. Note that Deb is referring to a Defined Benefit plan, and Colombell is one of those new fangled cash balance plans so neither hers nor my response addresses the question JD extracted from the limited information. Sw is also correct in that if income is low enough, coverage under any type of plan will not matter for eligibility for deductible IRA. What is going to happen under new laws is that employees will have to elect out of coverage for 401Ks, not elect in, so that I suspect we are going to see cases where small amounts are deferred because employee was not paying attention, eliminating IRA deductions.
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Bobkim (talk|edits) said:
| 14 January 2007
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| The income was $19,200. In 2005 he participated in the plan, but did not in 2006. I am not sure of the exact type of the plan, I just know the deferred wages were reflected on his w-2 in 2005. Thanks for the responses.
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Death&Taxes (talk|edits) said:
| 14 January 2007
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| If he were single, and his modified adjusted gross income did not exceed $50,000, he would be allowed to deduct a full contribution to an IRA even if he participated in his company's 401K. Read Publication 590
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