Are you an active participant?
Are you an active participant in your employer’s retirement plan?
A “yes” answer can affect your federal income tax deduction for contributions to your traditional IRA.
For 2011 and 2012, the maximum contribution to a traditional IRA is $5,000 (plus an additional $1,000 when you’re over age 50). When you’re an active participant in your employer’s plan, how much of that you can deduct may be limited.
Not sure of your status?
Look at the middle box on line 13 of Form W-2 — the one labeled “Retirement plan.” When the box is checked, you’re considered an active participant.
The next question — should the box be checked? — can cause confusion for both employers who prepare Form W-2 and employees who use Form W-2 to file tax returns.
That’s because the rules differ for different types of plans. For example, when you’re eligible to participate in a defined benefit plan, you’re an active participant even if you choose to not take part. Your eligibility is enough to trigger “active” status.
For 401(k) plans, you’re an active participant when you elect to make contributions. If you decide not to contribute, you may still be considered an active participant, depending on what other amounts were allocated to your account during the year.
Please call us at Dye Whitcomb 970.207.9724 if you need more information about the meaning of active participation. We’re ready to help.