What Is Active Participant Status?

Active participant status is a reference to an individual’s current participation in various employer-sponsored retirement plans such as 401(k) plans or def꧒ined-benefit pensions, and who is, therefore, eligible to🐷 receive plan benefits upon retirement.

Having this status provides certain tax benefits, but also limits your potential ability to take a tax deduction on contributions made to a personal 澳洲幸运5官方开奖结果体彩网:individual retirement account (I♛RA).

Understanding Active Participant Status

An active plan participant has the right to receive benefit payments from a pension plan, whether it is a 澳洲幸运5官方开奖结果体彩网:defined-benefit (DB) or a 澳洲幸运5官方开奖结果体彩网:defined-contribution (DC) pension plan, as long as the requirements under the plan’s contract have b𝓡een fulfillꦗed.

Active participant status applies to individuals who are currently participating in one or more of the following types of retirement plans:

• Qualified pension plans, such as 澳洲幸运5官方开奖结果体彩网:profit-sharing plans, defined-benefit (DB) plans, 澳洲幸运5官方开奖结果体彩网:money purchase pensions, or 澳洲幸运5官方开奖结果体彩网:target benefit plans
• 401(k) plans
• SEP IRAs
• SIMPLE IRAs
• 澳洲幸运5官方开奖结果体彩网:403(b) plans
• 澳洲幸运5官方开奖结果体彩网:Qualified annuity plans
• 澳洲幸运5官方开奖结果体彩网:Employee Funded Pension Trusts (created before June 25, 1959)
• A plan established for its employees by the United States, by a state or political subdivision of the United States, or by an agency or 澳洲幸运5官方开奖结果体彩网:instrumentality of the United States or any of its subdivisions

Under most defined-benefit pension plans, the member is required to complete a minimum number of years of service in order to qualify for their maximum allowable pension. The tax law definition of an “active participant” for a company plan could thus include employees not currently participating in the employer’s plan.

Active Participants and IRA Contributions

The specification of an active participant has important implications as to whether or not someone is eligible to claim a tax deduction for a contribution to a 澳洲幸运5官方开奖结果体彩网:traditional IRA, and certain rules around the designation can be hard to clarify. If you and/or y✨our 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 y𝓀ear.

If you are not able to deduct the full amount, you may be able to deduct a smaller portion, depending on your 澳洲幸运5官方开奖结果体彩网:modified adjusted gross income (MဣAGI).

Tax Deduction Phase-Out Ranges

Below are the income phase-out ranges for deducting a contribution to a traditional IRA in 2023 and 2024 as outlined by the 澳洲幸运5官方开奖结果体彩网:Internal Revenue Service (IRS).

In 2023, if you’re single, covered by a workplace retirement plan, and earn moꦡre than $73,000 but less than $83,000 in income, you can deduct a portion of your traditional IRA contributions. You are eligible for the full deduction if you earn $73,000 or less, and are ineligible for any deduction if you earn $83,000 or more. For 2024 IRA contributions, the income phase-out range is slightly higher: $77,000 to $87,000. 

In 2023, if you are married, filing jointly, or a qualified widow(er), and your spouse is covered by a workplace plan, the income limit range is $116,000 to $136,000, and in 2024, the range is $123,000 to $143,000. 

However, if you’re an IRA contributor who isn’t covered by a workplace retirement plan, but you’re married to someone who is covered, the income phase-out range for you both as a couple is $218,000 and $228,000 in 2023, and $230,000 to $240,000 for 2024. For example, in 2024, your tax deduction begins to get reduced at $230,000, and the deduction gets eliminated at $240,000 and higher.

The IRS adds that employers are required to check box 13 on your Form W-2 if they are active participants for the year, where the employer will check off the “Retirement Plan” box. Individuals should check with their employers to be sure. Ultimately, you may want to consult with your tax prof🔥essional for assistance with determining whether your IRA 🧸contribution is deductible.

The Bottom Line

Active participant status refers to an individual’s current participation in various employer-sponsored retirement plans such as 401(k) plans or defined-benefit pensions. Therefore, the individual is eligible to receive plan benefits upon retirement.