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
I have a client who changed jobs in February 2007. He had one month’s contribution flow into a 403(b) plan in January 2007 from his former employer’s 403 (b) plan .
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I have a client who changed jobs in February 2007. He had one month’s contribution flow into a 403(b) plan in January 2007 from his former employer’s 403 (b) plan .
I have a client who changed jobs in February 2007. He had one month’s contribution flow into a 403(b) plan in January 2007 from his former employer’s 403 (b) plan .
He’s now with an employer who has a 401(k) plan. He’s eligible for the 401(k) plan but he’s not able to contribute due to top heavy restrictions. His household income will fall around $150,000 MAGI for 2007.
Is he able to fund his own IRA and/or Roth for 2007 (assuming Roth income limits are met)?
Is his wife able to fund her own IRA and/or Roth for 2007? (she is a stay at home mom)?
They file a joint tax return.
Because he made a salary deferral contribution for the 2007 plan year, he is considered an active participant for 2007.
His wife is able to fund her traditional and/or Roth IRA based on his income.
The following applies:
Traditional IRA
He is eligible to contribute to a traditional IRA. However, his ability to deduct his traditional IRA depends on his modified adjusted gross income (MAGI) amount.
| If their MAGI is $83,000 or less | 100% of his contribution is deductible |
| If their MAGI is $83,000- $103,000 | A partial amount of his contribution is deductible. A formula must be used to determine the deductible amount |
| If their MAGI is $103,000 or more | None of his contribution is deductible |
For his wife, since she is not an active participant, but is married to someone who is an active participant, the following applies to her:
|
If their MAGI is $156,000 or less |
100% of her contribution is deductible |
|
If their MAGI is $156,000 – $166,000 |
A partial amount of her contribution is deductible. A formula must be used to determine the deductible amount |
|
If their MAGI is $166,000 or more |
None of her contribution is deductible |
Roth IRA
As you know, Roth IRA contributions are nondeductible. However, their eligible to contribute to Roth IRAs depends on their MAGI.
|
If their MAGI is $156,000 or less |
They can each contribute up to 100% of $4,000. This is increased to $5,000 for anyone who is at least age 50 by 12/31/2007 |
|
If their MAGI is $156,000 – $166,000 |
A partial amount of the $4,000 or $5,000 for anyone who is at least age 50 by 12/31/2007 . A formula must be used to determine the amount permissible |
|
If their MAGI is $166,000 or more |
No contribution is allowed |
Tip:
If either spouse is eligible to deduct only a partial amount of his/her traditional IRA contribution, he/she may contribute that amount to the traditional IRA, and contribute the difference to his/her Roth IRA. For instance, if the deductible amount is only $1,000, the individual could contribute the $1,000 to the traditional IRA and the balance of $3,000 ($4,000- $1,000) to a Roth IRA.
On the other hand, if the individual is eligible to contribute only a partial amount to a Roth IRA, the difference could be contributed to a traditional IRA.
In sum, the maximum contribution amount ($, 4000 or $5,000 for someone who is at least age 50 by year-end) can be split between a traditional IRA and a Roth IRA. The aggregate contribution should not exceed the $4,000 or $5,000 limit.
