Advanced Underwriting Consultants

Ask the Experts – March 27

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question: My client participates in a Thrift Savings Plan. He’s older than 50, and he and his wife earned $100,000 in 2013. Can he still contribute to his IRA?

Answer: Yes, he can contribute $6,500 to his IRA in 2013 since he’s older than 50. However, only a portion of that amount is deductible.

An active participant in a qualified plan can only deduct a portion of his IRA contribution once his income reaches a certain level. A Thrift Savings Plan is treated as a qualified plan under Section 401(a), so your client is an active participant.

In 2013 for married individuals filing jointly, the deductible amount of an IRA contribution begins to be phased out at $95,000. For every $1,000 of income above $95,000, the deductible amount is reduced by $325 for individuals older than 50.

Since your client earned $5,000 more than the threshold, his deductible amount is reduced by $1,625 (5 × $325). Therefore, he can make a deductible contribution of $4,875 ($6,500 – $1,625) and a nondeductible contribution of $1,625.

Keep in mind that his wife can still make a fully deductible contribution to her own IRA if she likes as long as she isn’t an active participant, and as long as their income didn’t exceed $178,000 in 2013.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.