The traditional individual retirement account (IRA) is designed to be a tax-deductible investment in your future. But there are limits. If neither you nor your spouse is an active participant in an employer-sponsored plan, such as a 401(k), you can claim the full deduction up to the maximum allowable contribution for the year.

If, however, either you or your spouse are active participants in another plan, your eligibility to deduct your contribution is determined by your tax filing status and the 澳洲幸运5官方开奖结果体彩网:modified adjusted gross income (MAGI) you report in your income taxes.

This can be tricky as the rules vary for each type of employer-♔sponsored retirement plan.

Determining Active Status

If you are considered an active participant, your employer should indicate this on your Form W-2 by checking the "retirement" box. Administrative errors happen, so this box is 🔜sometimes not checked even when it should be. It's helpful for ꧟you to understand the rules so you don't have to rely on your employer's record-keeping.

Here are the rules regarding active-participant statu🅘s for different types of employer retirement plans.

Defined-Benefit Plan

If you are eligible to participate in a 澳洲幸运5官方开奖结果体彩网:defined-benefit plan for the tax year, you are considered an active participant for that year. This is so even if you decline to participate in the plan, fail to make mandatory contributions to the plan, or fail to perform the minimum service required to accrue a benefit under the plan for the year.

Money-Purchase Pension and Target-Benefit Plan

For 澳洲幸运5官方开奖结果体彩网:money-purchase pension and 澳洲幸运5官方开奖结果体彩网:target-benefit plans, you are considered an active participant for the year during which your contributions to these plans apply. This is true regardless of when your contribution is actually deposited into your account.

For example, say your employer sponsors a money-purchase 澳洲幸运5官方开奖结果体彩网:pension plan and is requireꦬd to contribute 10% of eligible compensation to the plan each year. Your employer has until its tax-filing deadline, including extensions, to deposit a particular year's contributions. So, if a 2020 contribution was made in 2021, you are considered an active participant for the 2020 tax year, the year to which the contribution applies.

Profit-Sharing Plans and SEP IRAs

These plans are defined by the discretionary nature of the contributions. Employees are considered active for the year in which the contributions are actually deposited to the employees' accounts, even if the contributions apply to the previous year. The reason for this rule is that it is usually impossible for employers to guarantee contributions to these plans for any particular year.

To demonstrate, let's say your employer sponsors a profit-sharing plan, to which it contributes 10% of eligible compensation for the 2019 tax year. But the contributions are deposited in 2020. Employees are considered active participants for 2020, the year in which the contributions are actually deposited to their accounts.

401(k) and 403(b) Plans

If you make 澳洲幸运5官方开奖结果体彩网:salary-deferral contributions to a 401(k) or 澳洲幸运5官方开奖结果体彩网:403(b) plan, you are considered an active participant for the yea🅰r to which your salary-deferral contributions apply.

If you are eligible to make salary-deferral contributions but elect not to, you are not considered an active participant for that year.

Voluntary or Mandatory Contributions

You are considered an active participant for any year you make voluntary or mandatory contributions to an 澳洲幸运5官方开奖结果体彩网:eligible emplo🎀yer-sponsore🏅d retirement plan.

Vesting Status Does Not Affect Status

Depending on the plan provisions, you may not be immediately vested in the year's contributions you receive from your employer. But your vesting status does not alter whether you are an active participant. Even if 𓆏you leave that employer at a later date and you forfeit that non-vested contribution, you are still considered an active p😼articipant for the applicable year.

For example, ABC Company contributes 10% of its employees' compensation to its money-purchase pension plan for the 2019 tax year. Under the provisions of the ABC money-purchase pension plan, employees' contributions are 100% vested after working for three years. No vesting occurs before then.

Let's say that Jane leaves ABC Company for a new firm after two years of employment. Because Jane is leaving before she accrued any vested balance, she must forfeit the contributions that were made to her money-purchase-pension account at ABC Company. However, Jane is still considered an active participant for the 2019 tax year, because a required contribution was made to her money-purchase pension account.

Changes 🥀in Contribution Age Due to the SECURE Act

In early🧜 January 2020, former President Trump signed the . Before the Secure Act, you could not make contributions to a traditional IRA for the year during which you r🅺eached age 70½ or any later year.

Now, for tax years beginning in 2020, you can make contributions after reaching age 70½, meaning there is no longer an age restriction for contributing to traditional IRAs. The act does not change the age restriction on Roth IRA contributions because there is no such restriction.

The Bottom Line

If you and/or your spouse are active participants for a given year, you may need to perform a calculation to determine whether you are able to deduct your IRA contributions for that year. If you are not able to deduct the full amount, you may be able to deduct a portion, depending on your MAGI.

This formula is explained in 澳洲幸运5官方开奖结果体彩网:IRS Publication 590. Ultimately, you may want to ﷺconsult with your tax professional for assistance with determining whether your IRA contribution is deductible.