Traditional IRA deductibility with partial 401k coverage throughout the year?

[JLee]

I have a potential (unanticipated) job opportunity that may more than double my income - if it all works out, I may be well above the limit for a tIRA to be tax deductible, but I will also no longer be covered by an employer's retirement plan (from August through December, though I will have had a 401k for the preceding portion of the year).  I have already max'd my tIRA for 2015.

I read this:

The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $61,000 and $71,000, up from $60,000 and $70,000 in 2014.  For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $98,000 to $118,000, up from $96,000 to $116,000.  For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $183,000 and $193,000, up from $181,000 and $191,000.  For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

If this job opportunity does pan out, I doubt I will be able to get my AGI below $71k for 2015.  Would I still be able to take the deduction for the IRA since I would have no employer retirement plan for the last 5 months of the year?

[forummm]

My quick read is you were covered during the tax year, but read it more closely than I did. You should max out your 401k (as much as you can before you're out the door) and a Roth IRA after you leave.

http://www.irs.gov/Retirement-Plans/Are-You-Covered-by-an-Employer's-Retirement-Plan%3F


http://www.irs.gov/publications/p590a/ch01.html#en_US_2014_publink1000230449

[JLee]

Ouch. Does that mean I contributed post-tax money to a traditional IRA, so I'm taxed on it twice? There has to be a way around that.... :-/

[forummm]

If you already contributed to your traditional IRA, and it does turn out that you are not able to take a deduction for it, then you make a non-deductible contribution. You can either recharacterize it (take it out and put it into a Roth) or roll it over into a Roth. I've never done either of those so you'll have to get more info on how to do that. Your IRA provider can probably walk you through it.

[JLee]

If you already contributed to your traditional IRA, and it does turn out that you are not able to take a deduction for it, then you make a non-deductible contribution. You can either recharacterize it (take it out and put it into a Roth) or roll it over into a Roth. I've never done either of those so you'll have to get more info on how to do that. Your IRA provider can probably walk you through it.

Ahhhh, that is exactly what I need! Thank you!!

http://www.investopedia.com/articles/retirement/03/092403.asp

An individual may choose to recharacterize an IRA contribution to change the initial designation. For instance, an individual who makes a Traditional IRA contribution may recharacterize the contribution to a Roth IRA, thereby changing the contribution to a Roth IRA contribution, or vice versa.

The individual may choose to recharacterize a traditional IRA contribution if he or she is ineligible to receive a deduction for the contribution and feels it is then better to treat it as a Roth IRA contribution, for which earnings accrue on a tax-free basis. Alternatively, an individual may recharacterize a Roth IRA contribution to a Traditional IRA contribution in order to claim a tax deduction for the amount, or because he or she is ineligible for the Roth IRA contribution.

[forummm]

And you have until April 15th (or I think October 15th if you get an extension--you should double check that if you go this route) to complete the recharacterization. So you can figure out at the end of the year what your AGI actually was (instead of guessing) and then take care of it.