IRA tax deduction with partial 401k

[Eucerin]

I have googled this subject and read all the related articles, and I am still confused. I decided to post it in the forum for help as it always able to help me in the past. Thanks ahead.

My son is obtained a fulltime position in a company that will offer 401k in September, the company matches 3% if he goes with 6% (0.5:1). My question is that with partial 401k in a year, can he still purchase and deduct IRA 6k for a tax year?

 

[Brooksie]

Hi! Just reading this and contributing to 401's in the past, my 1st thought would be Yes to your question, ONLY if he contributed the other 3% out of his pay to maximize the total 6%. Just my thoughts!

 

[SevenUp]

Depends on his income. See IRA Deduction Limits | Internal Revenue Service.

 

[cathy63]

It depends on how much he makes. The IRA deduction phases out as income increases.

Here's an article that explains it pretty clearly: https://www.kiplinger.com/retiremen...-on-ira-and-401k-contribution-limits-for-2021

If you're contributing to a traditional IRA, the deduction allowed for your contribution is gradually phased-out if your income is above a certain amount. For 2021, the phase-out ranges are:

$66,000 to $76,000 for a single person covered by a workplace retirement plan (up from $65,000 to $75,000 in 2020);

 

[Brooksie]

Great Info! And BTW, I'm not confused about dryer sheets ...LMFO!!!

 

[Sunset]

OP - if his income is low for the year, it would be better for him to contribute to a roth instead of ira (in addition to his 401K contributions).

 

[Eucerin]

May be I make this too complicated. He is making under 66,000/year.
IRA allowable 6,000 for 2021. If his 401k contribution is 1,600 from September to December, can he contribute full 6,000? OR 6,000-1,600=4,400?

 

[cathy63]

May be I make this too complicated. He is making under 66,000/year.
IRA allowable 6,000 for 2021. If his 401k contribution is 1,600 from September to December, can he contribute full 6,000? OR 6,000-1,600=4,400?

He can contribute $6K to the IRA and the entire $6K is deductible because he will make under $66K this year.

The amount he contributes to the 401k doesn't matter.

 

[The Cosmic Avenger]

Basically, IRA and 401(k) limits are completely independent. Neither can or should affect the other.

 

[PaunchyPirate]

Basically, IRA and 401(k) limits are completely independent. Neither can or should affect the other.

Yes, but the ability to DEDUCT the IRA contribution from your taxable income at tax time is not independent. And the OP was asking about that too.

I believe, in this case, Cathy63 is correct above. Since the individual will make less than the income threshold where a reduction in IRA contribution amounts takes effect, he can contribute a full $6000 in his Traditional IRA plus contribute as desired to his 401k (up to it's own max). And he can deduct the $6000 from income at tax time. He could also contribute to a Roth IRA and not take a deduction, which seems like a better decision to me at that income level.

 

[Eucerin]

Got great responses here, thanks for all your help!!