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Tax-deductible IRA contributions
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November 13, 2000: 12:16 p.m. ET
A spouse's contribution to a retirement plan limits some IRA tax deductions
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NEW YORK (CNNfn) - IRA contributions seem less painful when they're tax-deductible, but sometimes it isn't always clear if you'll get a break from Uncle Sam.
For example, your spouse may have a 401(k) at work that would prevent a write-off.
But Congress recently made some changes in the laws so some people can get some tax relief, said Gary Ambrose, a certified financial planner in New York.
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VIDEO
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 Gary Ambrose, a certified financial planner, answers questions on Your Money's viewer mail segment. |
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Ambrose recently answered questions on CNNfn's Your Money and answered the following for CNNfn.com
John writes: I want to make a tax deductible contribution to my IRA, but my wife has a part time job that requires her participation in a 401(k). It used to be that I could not contribute to my IRA if we made jointly over 50,000. Does this still apply?
Answer: You are correct that your wife's active participation in a qualified retirement plan limits the deductability of your contribution. However, as you have no plan of your own, you fall under the new rules modified by congress in 1997.
Even though you are not a plan participant, deductions in the past would have phased out at the income level of $50,000. But Congress changed that, perhaps because it's unfair to lose IRA deductibility because of a spouse's retirement plan.
In your situation, therefore, the phaseout of deductions does not begin until your modified adjusted gross income (MAGI) reaches $150,000. All deductions are lost at an MAGI of $160,000. So long as your incomes are below this level, deduct away.
Do you have a question about whether you can afford to stop working? E-mail our experts at retirement@cnnfn.com.
Sudhir writes: I am 52 and employed as a consultant. i have been saving in a deferred income plan for the last three years. I have been offered a permanent employment where a deferred income plan is available. My current plan requires me to take the amount out in three payments upon the termination of my employment with the agency.
The question I have is whether I will be allowed to transfer the deferred income contribution from the existing plan to a new plan or into an annuity without any tax consequences. Please advise.
Answer: Non qualified Deferred Compensation Plans are a most complex area of retirement planning and differ substantially from the more common qualified plans that we hear so much about.
They are designed for "upper tier" employees. They are less beneficial to the employer from a tax perspective, and the income deferred may be subject to corporate creditors and default.
Distribution rules are more stringent than the typical 401(k) or IRA. Once distribution options are selected, they are irrevocable. It is important that you meet with the representative of your firm to understand the specifics of your plan.
Unfortunately, Sudhir, as a general rule deferred compensation plans are not eligible for rollover into another plan or annuity. 
* Disclaimer
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