Excess deferral
Definition Salary deferral contributions, contributions are limited to the lesser of the IRC § 402(g) limit or 100% of compensation. Salary deferral contributions in excess
February 28, 2009
Yes. You can contribute to an IRA whether or not you are covered by another retirement plan. There are certain requirements, however, that limit the amount that you may deduct for contributions to a traditional IRA. Contributions to a Roth IRA, while never deductible, may still be made even if you are a participant in an employer-sponsored plan. Roth contributions are limited based on your modified adjusted gross income (MAGI). You can calculate your MAGI using Worksheet 2-1 in IRS Publication 590, Individual Retirement Arrangements (IRAs). Based on your tax filing status, if your MAGI is below a certain amount, you can contribute the maximum, $5,000, to a Roth IRA for 2008, assuming you have at least $5,000 in earned income for the year. If your MAGI is above the amount, but within a certain range, your maximum contribution is reduced by a percentage. In addition, if you are aged 50 or older by the end of the year, you can contribute an additional amount to either IRA type as a “catch-up” contribution. A similar format (phase-outs and MAGI limits) applies to the deductibility of contributions to traditional IRAs for people, like yourself, who participate in employer-sponsored plans. The maximum annual contribution limit ($5,000 for 2008, $6,000 if 50 or older for 2008) apply in the aggregate to traditional and Roth IRAs, even though there is no limit on the number of Roth IRAs and traditional IRAs you may own. For example, if you are below the Roth IRA MAGI and you are 50 or older, the maximum amount you could contribute to all your IRAs for 2008 is $6,000.
*******This Q&A was taken from the IRS’s Summer 2008 Employee Plan Newsletter ******
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