Ask Terry Questions Individual Retirement Account

Individual Retirement Account

By Terry Savage on June 19, 2020 | Financial Planning / Retirement

Terry, My employer is terminating the company’s 401(k) Plan effective 06/30/2020. I have made contributions to the Plan this year and will continue to do so until the Plan is terminated. The amount that I will have contributed for 2020 will be $12,960.00. Since I will no longer be covered by an employer-sponsored plan as of 7/1/2020, do I qualify for a traditional tax-deferred IRA for the 2020 tax year? Thank you.

Terry Says

That depends on your overall income for 2020. And whether you are married and filing jointly.
Here’s a link to the IRS tables on income limits for deducting a traditional IRS>

Basically, if you earn less than $65,000 AGI you can take a full deduction.
But the real question, I think, is whether you are considered “covered” if you had a 40l(k) for PART of the year. And the answer to that is yes — BUT it might not all be deductible, per the below from

“Even if you participate in a 401(k) plan at work, you can still contribute to a Roth IRA and/or traditional IRA, as long as you meet the IRA’s eligibility requirements.
You might not be able to take a tax deduction for your traditional IRA contributions if you also have a 401(k), but that will not affect the amount you are allowed to contribute—up to $6,000, or $7,000 with a catch-up contribution, for 2020.”

So you will need a good tax preparer next spring who knows the deductions law — or use Turbo Tax. They have everything figured out!!



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