 Eligibility rules for traditional IRA
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 Dear
Tax Talk,
I switched jobs in March 2006 from Employer A to Employer B. I was
eligible for Employer A's retirement plan. However, I am not eligible
for Employer B's retirement plan during my first year of employment.
Am I eligible to contribute to a traditional IRA and take a full
tax deduction? Thanks!
-- Zubair
 Dear
Zubair,
In 2006 you can make a contribution of up to $4,000 ($5,000 if you
are over age 50) to a traditional IRA.
For 2006, if you are covered by a retirement plan
at work, your deduction for contributions to a traditional IRA will
be reduced (phased out) once your modified adjusted gross income,
or AGI, reaches a certain point.
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Your deductions will be reduced if your
AGI is: |
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The W-2 form you receive from your employer has a
box used to indicate whether you were covered for the year. The
"retirement plan" box should be checked if you were covered.
Generally, you are covered by a defined contribution plan, such
as a 401(k), for a tax year if amounts are contributed
or allocated to your account for the plan year that ends with or
within that tax year.
Since you had some coverage in early 2006, you will
be considered covered by a plan at work, no matter how small the
coverage. However, you can still make a contribution to an IRA,
it just won't be deductible if you exceed the AGI limits based on
your filing status.
To ask a question on Tax Talk, go to the "Ask
the Experts" page, and select "taxes" as the topic.
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