IRA contribution limits

[hopefullyoneday]

I have a question about IRA income limits for contributing to a IRA. Just got my taxes back from my tax guy and he told me i had to re-character my TRAD IRA to a ROTH IRA. He said my wife and i made too much money. I am a little confused when i looked at the TRADITIONAL IRA contributions limit table. I think my wife and i fall under the married filing jointly but there is 2 sections, 1 for if i am covered by a plan at work and another section if my spouse is covered by a plan at work. I have a pensions which is classified as a defined benefit plan and i also have a 457b plan offered thru my work. My spouse has a 401k plan as well as a pension plan. our combined AGI is $127k and my tax guy says we dont qualify for a Tradional IRA. I thought both of our plans were considered as a covered by work plan, or am i wrong. Thanks for any help.

 

[Dash man]

What you don’t qualify for is the deduction for contributing to a traditional IRA. You can keep the money in the tIRA, but you should just convert it into a Roth.

 

[hopefullyoneday]

What you don’t qualify for is the deduction for contributing to a traditional IRA. You can keep the money in the tIRA, but you should just convert it into a Roth.

But why don't i qualify. The table says married filing joint with 1 person having a covered employer plan no deduction is anything above $124k. and both persons with covered plans has a no deduction above $206k. Our AGI is $127k. I am thinking both of our plans are covered plans, or am i missing something.

 

[hopefullyoneday]

2020 and 2021 Traditional IRA Deduction Limits
If your filing status is… And your 2020 modified AGI is… And your 2021 Modified AGI is... Then you can take…
Single, head of household, qualifying widow(er), married filing jointly or separately and neither spouse is covered by a plan at work Any amount Any amount A full deduction up to the amount of your contribution limit
Married filing jointly or qualifying widow(er) and you're covered by a plan at work $104,000 or less $105,000 or less A full deduction up to the amount of your contribution limit
More than $104,000 but less than $124,000 More than $105,000 but less than $125,000 A partial deduction
$124,000 or more $125,000 or more No deduction
Married filing jointly and your spouse is covered by a plan at work $196,000 or less $197,000 or less A full deduction up to the amount of your contribution limit
More than $196,000 but less than $206,000 More than $197,000 but less than $207,000 A partial deduction
$206,000 or more $207,000 or more No deduction

 

[hopefullyoneday]

The question i am asking is my work offers a 457b and a defined benefit pension, and the wife's work offers a 401k. So do we both have covered plans or just me or just the wife. My tax guy seems to think it is just one of us based on him telling me we don't qualify for a TRAD IRA deduction. I am looking over the tax paperwork tonight so i cant call him to ask so i figure i would ask you guys first before questioning him.

 

[cathy63]

Look at Box 13 on your W-2s. If you see the "Retirement plan" box checked then you are covered by a retirement plan. Based on what you described, I believe you'll find that both of you are covered, and since your income is over $125K, you do not qualify for a deduction.

Note that you are not required remove the funds from your tIRA. You can leave them there if you want to, but since you don't get a deduction it's to your benefit to convert them to a Roth IRA and just pay any tax on the gains now.

 

[hopefullyoneday]

Look at Box 13 on your W-2s. If you see the "Retirement plan" box checked then you are covered by a retirement plan. Based on what you described, I believe you'll find that both of you are covered, and since your income is over $125K, you do not qualify for a deduction.

Note that you are not required remove the funds from your tIRA. You can leave them there if you want to, but since you don't get a deduction it's to your benefit to convert them to a Roth IRA and just pay any tax on the gains now.

Then i must not understand that chart correctly then. So what is the part in the table that states if your spouse has a covered plan with the AGI limit raised to $206k mean?

 

[hopefullyoneday]

This is the chart I'm referring to.

 

[cathy63]

Then i must not understand that chart correctly then. So what is the part in the table that states if your spouse has a covered plan with the AGI limit raised to $206k mean?

Since copy/paste doesn't work too well, here's a link to the charts: https://www.irahelp.com/2020

There are two different contributions to two different tIRAs under consideration here, yours and your wife's.

If you are covered by a retirement plan (i.e. if the box is checked on your W-2), then you must use the first chart to figure out whether your tIRA contribution is deductible. If you are not covered by a retirement plan (box not checked on your W-2), then you use the second chart.

Your wife then has to use the same logic to check whether her tIRA contribution is deductible.

 

[FreqFlyer]

 

[hopefullyoneday]

Ok, thanks. Apparently the chart i was looking at had a typo in it.

 

[cathy63]

This is the chart I'm referring to.

I find that investopedia chart to be somewhat confusing, but to use it you just have to remember to analyze each individual's contribution separately. Start at the top of the chart and stop as soon as you reach a row that describes that individual's situation.

 

[N02L84ER]

The chart you attached is only for Roth IRA contributions, not traditional IRA contributions. The entire left side keeps referring to Roth IRAs.

 

[SevenUp]

Ok, thanks. Apparently the chart i was looking at had a typo in it.

No typo that I noticed, but as cathy63 noted there is some interpretation required.

You might start with IRA Deduction Limits | Internal Revenue Service and follow the pertinent links. Does that make more sense?