Discussion:Retirement plan checked on W-2
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Www.cpa1.biz (talk|edits) said: | 10 February 2007 |
| Almanacers,
Taxpayer's spouse has X in retirment plan box of W-2. They both contributed to a Traditional IRA. Husband has no retirement plan with employer. Questions is if the spouse did not contribute to a retirement plan with employer even though it says she did (might be checked off because she did last year) on her W-2, can this traditional IRA still be deducted? The tax filers will not be able to deduct if one of them is participating in the employer's retirement participation box and that is why I am asking this question. Also, I have checked the numbers and there is no deduction in box 1 for a retirement plan or amounts in box 12 showing an amount contributed on the spouse's W-2. Please advise. Bj | |
| 10 February 2007 | |
| It doesn't matter if she contributed, what matters is that the employer had a plan that covered her. Might be some other type of plan besides the 401(k). | |
Death&Taxes (talk|edits) said: | 10 February 2007 |
| There is a recent egregious case of the extent this principle can be carried (Colombell). | |
| 10 February 2007 | |
| Wait...sorry for the intrusion but (unless I'm reading incorrectly) I thought new for 2006 is that both spouses can contribute up to a limit depending on age and AGI, and even if one is covered by a 401k by employer, and the other spouse doesn't work. | |
| 10 February 2007 | |
| Discussion:Active Participant in Qualified Plan
D&T thanks for that info. There is the link. | |
Www.cpa1.biz (talk|edits) said: | 10 February 2007 |
| Incredible!
This seems horrible for my client. Because of this X, they are out 8,000 in deductions. Is this right you all or should I tell my client to ask her employer if she was actually involved into a retirement plan and ask for a W-2C. | |
| 10 February 2007 | |
| Quote from IRS site:
"Modified AGI limit for traditional IRA contributions increased for a married couple filing a joint return. For 2006, if you are covered by a retirement plan at work, your deduction for contributions to a traditional IRA will be reduced (phased out) if your modified adjusted gross income (AGI) is: More than $75,000 but less than $85,000 for a married couple filing a joint return or a qualifying widow(er), More than $50,000 but less than $60,000 for a single individual or head of household, or Less than $10,000 for a married individual filing a separate return." | |
Death&Taxes (talk|edits) said: | 10 February 2007 |
| I suspect Brian's clients are above these more 'generous' levels else his software would permit the deduction. While there are some sloppy employers who check the block automatically, it is rare. Assuming their AGI is not over 150K, they should convert these IRAs into Roths......which is not a bad idea at all. Alas, you no longer are the hero, getting them lots of money back, but you have to make lemonade out of lemons. | |
Www.cpa1.biz (talk|edits) said: | 10 February 2007 |
| Good stuff D&T,
I will give them the bad news and tell them to convert. I will get a card from them in 20 years.... Bj | |
| February 10, 2007 | |
| I don't know if it's the case referenced above, but I seem to recall something from last year where 'covered' was construed to mean elgible for some reason, and for an amount of like, $1.37 or thereabouts, and the IRA deduction was disallowed. | |
| February 11, 2007 | |
| Brian - You should find out many more facts before you tell them to convert their IRAs to Roth IRAs. | |
Msmith7305 (talk|edits) said: | 11 February 2007 |
| In order to be an "active" participant, something (regardless of amount, but not 0) must have been put into her retirement account during the calendar year. This could be from her own contribution, an employer contribution, or depending upon the plan, a forfeiture allocated to the remaining participants.
Or any combination of the above. | |
| February 11, 2007 | |
| Msmith -
Except for the following: An employee is an active participant if covered by a defined benefit plan for any tax year that he or she is eligible to participate. See W-2 Instructions, page 13. | |
Death&Taxes (talk|edits) said: | 11 February 2007 |
| You have to read Colombell to see just how far the Courts are willing to go to enforce this. I used to think that an employee was not covered if no contribution had been made to the plan by the employer, then I learned of people who had money added when others quit before vesting and forfeited their accounts....now I read a case like Colombell and see that it is far more complicated than I ever thought. Deb is correct, however, that the situation bears more research on the client's part and yours. Doing taxes is not simply 'here you are and out the door.' Clients should understand why things happen and should see their HR departments for explanations. Also, Brian, if this happened this year, did it happen in the past? Did they take deductions that might have to be amended? Next, the Roth sounds simple, but not if future incomes will be in excess of 150K. A one year contribution can sit all alone for many years. Remember, they can also make leave the contribution in a traditional, file 8606 and convert it to Roth in 2010 when there is no income limit on who can do this and the beauty is they will only be taxed on the earnings on that conversion. | |
| 11 February 2007 | |
| "Remember, they can also make leave the contribution in a traditional, file 8606 and convert it to Roth in 2010 when there is no income limit on who can do this and the beauty is they will only be taxed on the earnings on that conversion."
| |
| 11 February 2007 | |
| Yoga - beware of the 8606. The taxpayer would have to convert ALL of his IRAs (including SEPs and Simples) to ROTHs in order to get his basis out. | |
Death&Taxes (talk|edits) said: | 11 February 2007 |
| As I said, 'Doing taxes is not simply 'here you are and out the door.' Kevin raises another excellent point, though converting in 2010 will permit the tax to be spread over two years, I believe....this assuming no one changes the law in the meantime. | |
| 11 February 2007 | |
| it's like the cheap furniture store - buy now and no payments till 2011. | |
| 10 April 2007 | |
| D&T - Assuming the Congress (and the new President in '08) won't make some tax changes prior to 2010, that is... | |
