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June 11, 2009

Does a one month 401(k) contribution make me an active participant

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Does a one month 401(k) contribution make me an active participant

Question I recently lost my job, but prior to my termination I made a http://retirementdictionary.com/definitions/salarydeferralcontribution salary deferral contribution to my http://retirementdictionary.com/definitions/401kplan 401(k) during January of this year. Am I no longer an http://retirementdictionary.com/definitions/activeparticipant active participant in the 401(k) plan? Does that one contribution affect my ability to take a tax-deduction for my http://retirementdictionary.com/definitions/traditionalira traditional IRA contribution for this year?

Answer

Even though you participated in the plan for only one month, you are still considered an active participant for the year. Bear in mind, however, that you may still be eligible to claim a deduction (or partial deduction) for your IRA contribution, if your http://retirementdictionary.com/definitions/modifiedadjustedgrossincomemagi Modified Adjusted Gross Income (MAGI) is within the limits stated here http://retirementdictionary.com/definitions/activeparticipant

If you are not eligible to claim a tax-deduction for your contribution, you can either:

• Make a http://retirementdictionary.com/definitions/nondeductiblecontribution nondeductible contribution to your traditional IRA,
• Split your contribution between your traditional IRA and your http://retirementdictionary.com/definitions/rothira Roth IRA (your total contribution cannot exceed the limit in effect for the year. Click http://retirementdictionary.com/definitions/ira here for the limit in effect for this year)
• Make your contribution to a Roth IRA, if you are eligible. For Roth IRAs, your Modified Adjusted Gross Income (MAGI) would need to be within the limits stated here http://retirementdictionary.com/definitions/rothira

For more on this, please see the article http://retirementdictionary.com/articles/29/active-participant-statusâcan-you-deduct-your-ira-contribution Active Participant Status–Can You Deduct Your IRA Contribution?

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at http://irapublications.com. Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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