I’m looking forward to having this clarified.

We have been fully funding two Roth IRAs (hers and mine) for the past few years. However, this year I thought about changing her investments to a traditional IRA instead of Roth to hedge our tax bets.

That is when I was looking into eligibility requirements for deducting traditional IRA contributions. The problem I was running into is that IRS documents typically say that the contributions are not deductible if you are “covered” by a 401k. What does “covered” mean? Does that mean that a 401k plan is AVAILABLE to you? Or, does it mean that you PARTICIPATE IN / CONTRIBUTE TO a 401k plan? In this article, you contend that it is the former.

If I remember correctly, there is only one place in the IRS documentation where I could find a little more clarity. There, it says that you can’t deduct your contributions to a traditional IRA if Box 13 (retirement plan) is checked on your W-2.

If you look at the IRS instructions for W-2 forms, you find the following:

Box 13 is supposed to be checked “if the employee was an ‘active participant’ (for any part of the year) in…. A qualified pension, profit-sharing, or stock-bonus plan described in section 401(a) (including a 401(k) plan).”

The next paragraph of the instructions states the following:

“Generally, an employee is an active participant if covered by (a) a defined benefit plan for any tax year that he or she is eligible to participate in or (b) a defined contribution plan (for example, a section 401(k) plan) for any tax year that employer or employee contributions (or forfeitures) are added to his or her account.”

Based on my interpretation, I think you have to PARTICIPATE / CONTRIBUTE to a 401k plan to be ineligible to deduct your traditional IRA contributions. Since my wife has never contributed to her 401k, I think we can deduct our contributions to a trad. IRA since we also meet the income limits.

However, I am looking for additional opinions. Do you ahve any additional information to add to this discussion, Robert?

This is critical for me as we decided to fully fund a traditional IRA for my wife this year.