Hey everyone,
I'm trying to figure out if myself and my wife are technically "covered" by our respective company's 401k plan.
This is from the IRS website:
http://www.irs.gov/Retirement-Plans/Are-You-Covered-by-an-Employer's-Retirement-Plan%3FYou’re covered by an employer retirement plan for a tax year if your employer (or your spouse’s employer) has a:
Defined contribution plan (profit-sharing, 401(k), stock bonus and money purchase pension plan) and any contributions or forfeitures were allocated to your account for the plan year ending with or within the tax year;
IRA-based plan (SEP, SARSEP or SIMPLE IRA plan) and you had an amount contributed to your IRA for the plan year that ends with or within the tax year; or
Defined benefit plan (pension plan that pays a retirement benefit spelled out in the plan) and you are eligible to participate for the plan year ending with or within the tax year.
Box 13 on the Form W-2 you receive from your employer should contain a check in the “Retirement plan” box if you are covered. If you are still not certain, check with your (or your spouse’s) employer.
The limits on the amount you can deduct don’t affect the amount you can contribute. However, you can never deduct more than you actually contribute.
We have been contributing to our respective ROTH IRAs over the years when we have been able, and due to our new jobs, this is the first year that we will be able to max them out. We were both granted access to 401k plans at work as of this year but due to the fact that both of our company's 401k plans have horrible investment option, high fees, long vesting periods, and poor matches we have decided not to partake in them.
The main question is, because we are deciding not to utilize those 401k plans, would we still be considered "covered" by the IRS standards above?
We would like to save inside of a tIRA next year to reduce our taxable income, but there is a good chance that we will have an MAGI greater than the $96000 allowed for a full deduction if we are considered covered by a 401k plan. If so, it would make sense to just keep contributing to our ROTH IRAs. If we ARE NOT considered "covered" by a plan due to our not partaking in one, then there will be no worries since we can claim the full deduction.
Thoughts or suggestions?