The ERISA consultants at the Learning Center Resource Desk, which is available through Columbia Threadneedle Investments, regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans. A recent call with an advisor in Oregon is representative of a common inquiry regarding 401(k) plan participation and IRA contributions. The advisor asked:
“A client of mine who participates in a 401(k) plan at work was told by his tax preparer that he cannot make an IRA contribution. Is that correct?”
If your client is under age 70½ and has earned income for the year of contribution, he is eligible to make a traditional IRA contribution. But because he participates in a 401(k) plan, the contribution may not be fully tax deductible.
Deductibility of a traditional IRA contribution depends on whether the individual (or his or her spouse) is an active participant in an employer-sponsored plan, tax filing status and the amount of modified adjusted gross income (MAGI) for the year (IRC Sec. 219(g). To view a chart that provides the 2016 and 2017 MAGI limits and indicates the deductibility of a 2016 traditional IRA contribution when the individual (or spouse) is covered by a workplace retirement plan, click here.
Conclusion
If a person meets the age and income requirements for a year, he or she is eligible to make a traditional IRA contribution. But the tax deductibility of the contribution will be affected by participation in a workplace retirement plan, tax filing status and MAGI.
The Learning Center Resource Desk is staffed by the Retirement Learning Center, LLC (RLC), a third-party industry consultant that is not affiliated with Columbia Threadneedle. Any information provided is for informational purposes only. It cannot be used for the purposes of avoiding penalties and taxes. Columbia Threadneedle does not provide tax or legal advice.
Consumers consult with their tax advisor or attorney regarding their specific situation.
Information and opinions provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Columbia Threadneedle.
Columbia Threadneedle Investments (Columbia Threadneedle) is the global brand name of the Columbia and Threadneedle group of companies.
©2017, Columbia Management Investment Advisers, LLC. Used with permission.
