Discussion:Active participant rules for traditional IRA

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Discussion Forum Index --> Basic Tax Questions --> Active participant rules for traditional IRA

Discussion Forum Index --> Tax Questions --> Active participant rules for traditional IRA

Cottcpa (talk|edits) said:

17 August 2009
Spouse was employed & participating in a company plan at 1/1/09, but she left the employer in January 2009 and is no longer participating in any company plans. My understanding is that active participant status is based on "any time" during the year, as opposed to year end. Is anyone familiar with any rulings, cases, etc that can be cited as authority so as to allow her to contribute to a traditional IRA in 2009?

LH2004 (talk|edits) said:

August 17, 2009
She can contribute to an IRA (if she has compensation and is under 70 1/2). What she cannot do is deduct a contribution if her income exceeds the limits.

Riley2 (talk|edits) said:

17 August 2009
Cott, quoting from Notice 87-16,

Generally, in the case of a defined contribution plan, an individual shall be an active participant if employer or employee contributions or forfeitures are allocated to such individual's account with respect to a plan year ending with or within the individual's taxable year.

Marty1970 (talk|edits) said:

17 August 2009
Yes, Cott, Notice 87-16 contains many of the specs for determining active participant status. So is this a defined contribution plan, such as a 401(k)? If yes, then what's the last pay date which includes even $1 of salary deferred by her? What's the plan year end? If a person deferred $1 with respect to a 7/1/08 payday and the plan year ends 6/30/09, the person is an active participant for 2009.

Also remember we're distinguishing participant from ACTIVE participant. If she merely had an account balance as of 1/1/09, this fact alone doesn't constitute active participation. Under what conditions is an employer contribution or a forfeiture allocated? You might need the legal plan document for that one.

Exactly what kind of plan is it? With a defined benefit plan, the mere state of having met a plan's eligibility requirements consitutes active participant status. This is true even if the employee wishes to decline participation. This unfair result often snags substitute teachers who work as little as one day and will never receive any benefit at all from the plan.

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