I wanted to check/confirm if the the self-employed 401K (used by non incorporated sole prop Sch-C business) is treated the same as a normal employer sponsered plan in terms of determing the deductability of a traditional IRA contributions. In other words a someone with a MAG <
56K can deduct both the full 401K contribution plus the IRA independent of where the income came from.E.g. 2011 Tax Return Example:
70000 in Schedule C income (only income source) (assume zero other deductions for simplicity). 16500 to self employed 401K (1040 line 28)------------------------------------------------- MAGI = 53500 therefore fully deductable trad IRA
5000 to Trad Ira (1040 line 32) ======================21500 In fully deductable retirement contributions (401K + IRA) allowed.Is this correct ? Note that I assumed the SE-401K (line 28) deduction is not added back to compute MAGI. On a similar note, is it true/false the MAGI IRA threshold (56K) test is computed before the IRA deduction (line 32) it is trying to vadidate is included? In other words AGI must be < 56K before entering anything into 1040 line 32 for full IRA deductability?
Note that I also realize that you can also contribute profit sharing to the SE-401K (more than the deferal limit of $16.5K) , but I wanted to keep the example simple.