Tax Deductible?

Who is Covered by an Employer Retirement Plan?

An employer plan may include a qualified pension, profit sharing, stock bonus, 401(k), and/or money-purchase pension plan.  Employer plans also include tax-sheltered annuity plans for employees of public schools and certain tax-exempt organizations, simplified employee pensions (SEPs), SIMPLE plans and qualified annuity plans.

An individual is covered by an employer plan if he or she is an active participant (see below) in an employer retirement plan.  A covered individual can make contributions to an IRA, but the contribution may not be fully deductible.

Even if you are only covered by an employer’s plan for only one day, the deductibility rules will apply to any contributions made during the year.  So if  your primary reason for contributing to an IRA early in the year is solely to receive a tax deduction, you better make sure that later on in the year you, or your spouse, are not going to be considered an active participant in a retirement plan.

Your annual W-2 Form received from an employer will indicate if you are an active participant in a retirement plan.  

If either you or your spouse is covered by an employer plan, you are each subject to certain deductibility limitation rules.