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June 11, 2009

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


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 salary deferral contribution to my 401(k) during January of this year. Am I no longer an active participant in the 401(k) plan? Does that one contribution affect my ability to take a tax-deduction for my traditional IRA contribution for this year?


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 Modified Adjusted Gross Income (MAGI) is within the limits stated here

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

• Make a nondeductible contribution to your traditional IRA,
• Split your contribution between your traditional IRA and your Roth IRA (your total contribution cannot exceed the limit in effect for the year. Click 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

For more on this, please see the articleâcan-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 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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