A Safer Retirement and Environment – What We’re Implementing to Help Keep You Safe: READ MORE

Here at Chadmere Capital Inurance and Financial Services, we are adhering to state and local guidelines in order to protect both the health and safety of clients and staff. Keeping our clients and staff safe is our highest priority and we’re taking all appropriate measures to ensure a safe environment. Should you prefer to not meet face-to-face, we are continuing to serve our clients through virtual settings such as Zoom or phone calls.

We look forward to continuing to help individuals and families achieve their ideal retirements.

Chademere Capital Insurance and Financial Services
(803) 285-0060



By Andy Ives, CFP®, AIF®
IRA Analyst

Jenny earns a salary of $1,000,000. She is single and is not an active participant in a company retirement plan. Jenny can contribute $6,000 to a traditional IRA and deduct the full amount on her taxes. Benny, also unmarried, has a modified adjusted gross income of $76,000. He participates in a 401(k) at work. Benny can make a $6,000 contribution to a traditional IRA, but he is not allowed to deduct it. What gives? A person making a million can deduct an IRA contribution, but the person with a MAGI of $76,000 cannot? Is this another example of the rich getting richer?

No, not really. The key factor driving eligibility for a deduction of a traditional IRA contribution is not salary or MAGI, but participation (or lack thereof) in a company retirement plan. When a person or their spouse is an “active participant” in a company retirement plan for any part of the plan year, his ability to deduct an IRA contribution is then contingent upon phase-out ranges. In 2019, these ranges are $64,000 – $74,000 for single or head of household, $103,000 – $123,000 for those married filing joint, and $193,000 – $203,000 for an IRA contributor who is not an active participant but is married to someone who is. (These numbers will increase in 2020 to $65,000 – $75,000, $104,000 – $124,000, and $196,000 – $206,000, respectively.)

But what are the finer details of “active participation”?

Plan Type. Active participation in a 401(k), 403(b), SEP or SIMPLE plan affects deductibility. Profit sharing, stock bonus and Keogh plans also impact deductibility, as do governmental plans established by the U.S. Government (i.e. Federal TSP) or by a state government (including county, parish, city, town, etc.). Note: Section 457 deferred compensation plans do not impact IRA deductibility.

DB vs. DC Plans. Individuals who work for a company that maintains a defined benefit plan are considered “active participants” unless the individual is specifically excluded under the plan’s eligibility provisions. For defined contribution plans [i.e. 401(k), profit sharing, money purchase plans], a person is an active participant if contributions or forfeitures are allocated to his or her account for the year.

SEPs and Discretionary Profit Sharing Plans. A person is an “active participant” when an employer contribution or forfeiture is allocated to his balance. This applies to the year in which the contribution is made.

SIMPLE and 403(b) Plans. One is an “active participant” if he makes salary deferrals.

Even if a person only participated in the above plans for a short period of time, or even if he only contributed a small amount, he is considered an “active participant” for that entire year. Whether or not the participant’s benefits are vested is irrelevant.

Who is not considered an active participant? Individuals who are eligible to make salary deferrals but decline (and do not receive other contributions or forfeitures) are not considered “active participants.” Those covered under social security or railroad retirement, individuals who receive benefits from a prior employer’s plan, and those who only receive earnings in their account are not active participants. As mentioned, those participating in 457(b) deferred compensation plans are not “active participants” nor are members of the Armed Forces Reserve units based on reserve duty, unless serving more than 90 days of active duty during the year (not including training).

Are you an active participant or not? It can be confusing, but there is a “cheat code” to confirm. Generally, active participation in an employer plan is reflected by a check mark in the “Retirement Plan” box on a person’s W-2.


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Investment advisory services offered through Foundation Investment Advisors, LLC, a SEC-Investment Advisor Representative. Foundation Investment Advisors, LLC does not provide legal or tax advice. Investment Advisor Representatives of Foundation Investment Advisors, LLC may only conduct business with residents of the states and jurisdictions in which they are properly registered or exempt from registration requirements. Insurance and annuity products are sold separately through Chadmere Captial. Securities transactions for Foundation Investment Advisors, LLC clients are placed through TD Ameritrade.