tIRA contribution if I had 401k part of the year??

[NorcalBlue]

Was wondering if I can make a full tIRA contribution if I had a employer 401k for only part of the year?  I was laid off in February 2015.  Was reading that there are no income limits for a tIRA deduction if a person isn't under an employer plan.

Thanks

[seattlecyclone]

Nope, even part-year coverage under a workplace retirement plan is enough to trigger the lower income limit for deductible contributions.

[Cathy]

The IRS obfuscates matters here with the term they use on their website ("covered by an employer retirement plan").

Subject to certain exceptions and qualifications, the inquiry is generally whether the employee or the employee's spouse was an "active participant" in the plan, as I noted in a past post. If you look at how the IRS defines the term "covered by an employer retirement plan" on their website, you'll see that their definition actually incorporates the active participation test, so the IRS website isn't exactly wrong (but you do need to read it very carefully). However, I think the term they use on the website is confusing, because the language of "covered by" sort of implies that the relevant inquiry is just whether the plan was available (and that is wrong).

Note: As usual, I express no view on the specific circumstances of the original poster.

[NorcalBlue]

Thanks for the feedback.  Seems like a crock that I can't get the tIRA deduction as I was only a participant in my employers 401k plan for 1 month in 2015 and then laid off.  I might be able to qualify partially due to income (looking like 75k AGI or so for 2015).

Oh well.  I guess I could max out my HSA account instead in order to get a deduction?

[dandarc]

On the plus side - you made $75K working only 1 month in your job?  Nice!

[Paul der Krake]

Thanks for the feedback.  Seems like a crock that I can't get the tIRA deduction as I was only a participant in my employers 401k plan for 1 month in 2015 and then laid off. 

This "shortcut" shows up many times in the taxation world. Examples that come to mind are the child tax credit (as long as your child is born before midnight on December 31st, you get it), or being eligible for HSA contributions (usually you get the whole thing as long as you are eligible in December).

Coming up 100% fair rules that take into account everyone's messy lives, filled with divorces, layoffs, moves, children, deaths, disabilities? Not going to happen.

You got the short end of the stick this time. Expect to both "win" and "lose" a few more times over the 50+ years as a taxpayer. It might even out in the end.

[NorcalBlue]

Haha...Thanks folks.  Yeah, the $75k was due to my Severance and Vacation payout as they kicked my !@# out the door after 11 years (laid off).  Luckily, I was in a position to FIRE (43 yo) - just didn't know it would happen when it did.

Question:  Can I still max out my HSA contribution?  I only contributed a small amount before I was let go. a My company insured me for another 6 months (until August) and then I purchased separate plan after that.

Thanks for all the help!

[dandarc]

Google indicates you have until April 15th to fund a 2015 HSA.

[Paul der Krake]

Question:  Can I still max out my HSA contribution?  I only contributed a small amount before I was let go. a My company insured me for another 6 months (until August) and then I purchased separate plan after that.

Do the reading on this one, because the answer is going to depend on the nature of your plans (are they both HSA-eligible?), and when you had them. You don't want to contribute more than allowed.

Start here and read very carefully, it's easy to mess up when things change mid-year:
https://www.irs.gov/publications/p969/ar02.html#en_US_2015_publink1000204025

[NorcalBlue]

Thanks everyone!

[frugalnacho]

Thanks for the feedback.  Seems like a crock that I can't get the tIRA deduction as I was only a participant in my employers 401k plan for 1 month in 2015 and then laid off. 

This "shortcut" shows up many times in the taxation world. Examples that come to mind are the child tax credit (as long as your child is born before midnight on December 31st, you get it), or being eligible for HSA contributions (usually you get the whole thing as long as you are eligible in December).

Coming up 100% fair rules that take into account everyone's messy lives, filled with divorces, layoffs, moves, children, deaths, disabilities? Not going to happen.

You got the short end of the stick this time. Expect to both "win" and "lose" a few more times over the 50+ years as a taxpayer. It might even out in the end.

If your child is born before midnight on December 31st you get to claim them for that year, but you get fucked out of claiming them 18 years down the road so you make up for it on the back end.  Two families with children born minutes apart, but in separate years, still end up claiming dependents for the same number of years, they are just offset by 1 year.

[Paul der Krake]

Thanks for the feedback.  Seems like a crock that I can't get the tIRA deduction as I was only a participant in my employers 401k plan for 1 month in 2015 and then laid off. 

This "shortcut" shows up many times in the taxation world. Examples that come to mind are the child tax credit (as long as your child is born before midnight on December 31st, you get it), or being eligible for HSA contributions (usually you get the whole thing as long as you are eligible in December).

Coming up 100% fair rules that take into account everyone's messy lives, filled with divorces, layoffs, moves, children, deaths, disabilities? Not going to happen.

You got the short end of the stick this time. Expect to both "win" and "lose" a few more times over the 50+ years as a taxpayer. It might even out in the end.

If your child is born before midnight on December 31st you get to claim them for that year, but you get fucked out of claiming them 18 years down the road so you make up for it on the back end.  Two families with children born minutes apart, but in separate years, still end up claiming dependents for the same number of years, they are just offset by 1 year.

Eh, it's not like every child stops being a dependent at 18. College-bound teens they stop being claimed as dependents whenever it makes sense to do so. And money now is better than money later.