Question: Robert and Patrice are a married couple who file their returns jointly. Robert, 62, retired last year after working for many years as a teacher. His only source of income for 2023 was his teacher’s retirement plan. Patrice, 49, is still working and contributes to her 401(k) plan through her job. For 2023, they are facing a tax bill of nearly $2,000. When meeting with their tax professional, the couple asked if contributing to traditional IRAs would reduce part or all of this debt. Their 2023 MAGI is $125,000, and when their professional went to illustrate the impact funding traditional IRAs might have, the question of “covered by a pension plan” became difficult to answer for Robert’s situation.
Our question is: Does Robert receiving his teacher’s retirement benefits result in him being considered “covered by a retirement plan” for purposes of traditional IRA deductibility? The answer could eliminate their tax due.
Answer: Per IRS Publication 590A: Situations in Which You Aren’t Covered: Benefits from previous employer’s plan.
If you receive retirement benefits from a previous employer’s plan, you aren’t covered by that plan.
Therefore, Robert is not considered to be covered by a retirement plan and, as a non-working spouse over age 50, he can make a fully deductible contribution of $7,500 by April 15, 2024, and indicate to his IRA trustee that this contribution is for tax year 2023. He can do so because Patrice has earned income for 2023 and is his spouse.
Patrice can also contribute to a traditional IRA for 2023. Still, her deductible portion is limited due to her participation in her employer’s 401(k) plan, which meets the definition of “covered by a retirement plan.”
