My wife and I file jointly and expect to have a 2010 MAGI of roughly $210k. We participate in our employers 401k and will continue to do so until retirement. Ordinarily we can not make deductible IRA contributions b/c we were cvered by our employer plan.
But now... we are both retiring at the end of the month. Will we be able to contribute to an IRA and deduct the contribution since we were covered by an employer's plan for only PART of the year?
Thanks
No, coverage for even one day of the year limits the deductibility.
-Mark Bole
plan that you can deduct your IRA contribution if your joint income is
176k or less. If you were covered by a retirement plan, then you can only deduct if your income is 109k or less. So with an AGI of 210k, you certainly don't qualify. Besides, I don't think that they have a special rule for part-year employment (so that the limit could be between 109k and 176k).Are you aware that you can make a non-deductible contribution to a traditional IRA (for 2009 and 2010, for both you and your spouse), and right away convert that to a Roth IRA (provided you ask your brokerage/ trustee first and fill out the appropriate forms). If all of your IRA contributions are non-deductible, then the conversion is tax tree. Normally you can convert from traditional to Roth if your AGI is under
100k, but for 2010 the 100k limit is suspended, and in 2011 it returns. So this is a way to convert to a Roth.
If those post tax deposits had any gains at all, there's a tax to be paid. Not quite tax free.
A 2010 conversion has the option of spreading the income into tax years
11 and 12. Conversions are still permitted in 11 and beyond but are part of that year's income. The income based conversion limit is gone, it doesn't return in 11. Unless, of course congress changes their mind.
Thank you Mark, that was exactly what I needed to know.
Your statement is not accurate. Pursuitant to pub 590, page 12, if neither you nor your spouse were covered by an employer sponsored plan, then your contribution is fully deductible and there is no phaseout of deductibility based on income limits.
The $109k and $176k phaseouts only come into play when wither you or your spouse is covered by an employer sponsored plans, respectively.
Thanks, I was aware. But based on current tax law, the $100k limit on coversion doesn't return in 2011. And it is quite a rare occurence that one would have only non-deductible IRA contributions and no gains over their entire investing life (I know I don't). Otherwise, the conversion is only partially tax-free.
Yeah, sorry I was thinking about the case where you put money into a traditional IRA, no deduction, and that's all you've ever put into a traditional IRA, and you right away convert to a Roth IRA. There are probably no earnings then.
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