Frequently Asked Tax Questions And Answers
Keyword: Deductible Contributions (IRA)
5.1 Pensions and Annuities: General
Am I considered covered by an employer sponsored retirement plan
for the year if I do not participate in the plan or if I did not work long
enough to be vested?
The answer to this question depends on your type of retirement plan. If
your employer's plan has a separate account for each employee. This is called
a defined contribution plan if any amount was contributed or allocated by
you or your employer to your account, you are considered covered. It does
not matter if you have worked long enough to be vested.
In the other type of plan, the plan employer must make enough contributions
(together with earnings) to provide the retirement benefit promised in the
retirement plan. This is called a defined benefit plan. In this type of plan,
if you meet the minimum age and years of service requirements to participate
in your employer's plan, you are considered covered even if you decline coverage.
It does not matter if you are vested.
The Form W-2 you receive from your employer has a box used to indicate
whether you were covered for the year. The "Pension Plan" box should have
a mark in it if you were covered.
References:
17.4 Individual Retirement Arrangements (IRAs): Traditional IRA
Can an individual who is contributing to a SEP-IRA also contribute to a
traditional IRA?
Yes, if they meet certain requirements. A SEP-IRA is considered a retirement plan,
so the Adjusted Gross Income (AGI) limitations have to be considered. If your AGI,
which is computed after the SEP contribution, is in excess of those limits, then the
IRA contribution that you make would be nondeductible. The information on the AGI
limits is in Publication 590, Individual Retirement Arrangements (IRAs) ,
in the section How Much Can I Deduct? Your SEP IRA Contribution and Traditional
IRA Contribution may both be made to your SEP IRA.
References:
I want to establish a traditional individual retirement arrangement (IRA)
for my spouse, and I need additional information. What is the most I can contribute
to a spousal IRA during the tax year?
If both you and your spouse work and both have taxable compensation, each of you
can contribute up to $3,000 (or the amount of each IRA owner's compensation, if less)
to a separate traditional IRA. Even if one spouse has little or no compensation, up
to $3,000 can be contributed to each IRA if combined compensation is at least equal
to the amount contributed to both IRAs and you file a joint return. You can contribute
$3,000 to a separate IRA for your nonworking spouse if you file a joint return. Your
total contribution to both your IRA and the spousal IRA for this year is limited to
the smaller of $6,000, or your taxable compensation reduced by any contributions you
make to a traditional IRA or Roth IRA. You cannot contribute more than $3,000 to
either IRA for the year. If you are 50 or older in 2003, the most that can be contributed
to your traditional IRA for 2003 is the lesser of:
. $3,500 (up from $2,000), or
. Your compensation that you must include in income.
For additional information, refer to Tax Topic 451, Individual Retirement
Arrangements (IRAs), or Publication 590, Individual Retirement Arrangements
(IRAs) .
References:
Can I take an IRA deduction for the amount I contributed to a 401(k) plan
last year?
No. A 401(k) plan is not an IRA. However, the amount you contributed is not included
as income in box 1 of your W-2 form so you don't pay tax on it for 2003. For more
information, refer to Tax Topic 424, 401(k) Plans, Publication 575, Pension
and Annuity Income, or Publication 560, Retirement Plans for Small Business.
References:
If I am covered by a employer sponsored retirement plan for part of the
year, but work the rest of the year for an employer without a retirement plan, how
much of my earnings may I deduct for a traditional IRA?
The amount you can deduct will be determined by your modified Adjusted Gross Income
(AGI) and filing status. For specific information refer to Publication 590, Individual
Retirement Accounts (IRAs).
References:
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