Does participating in both a 2024 IRA through an S Corporation and a 401(k) plan with another employer affect eligibility for IRA deductions or Roth IRA contributions?
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Participating in both a 2024 IRA (through an S Corporation) and a 401(k) plan with another employer is permitted, but it does affect your eligibility for deducting Traditional IRA contributions and for making Roth IRA contributions. The key factor is whether you are considered an "active participant" in an employer-sponsored retirement plan, which includes a 401(k), and how your income compares to IRS phase-out thresholds.
1. Traditional IRA Deduction Eligibility
Active Participant Status:If you participate in a 401(k) plan with another employer, you are considered an "active participant" for IRA deduction purposes, regardless of whether you also contribute to an IRA through your S Corporation. This is true even if your S Corporation income is self-employment income; if you have a 401(k) at another job, you are an active participant.
Deduction Phase-Outs for 2024:- Single or Head of Household: Deduction phases out if your modified adjusted gross income (MAGI) is between $77,000 and $87,000.- Married Filing Jointly (if you are the covered participant): Deduction phases out between $123,000 and $143,000.- Married Filing Jointly (if your spouse is the covered participant, but you are not): Deduction phases out between $230,000 and $240,000.- Married Filing Separately: Phase-out is $0 to $10,000.
If your MAGI is below the phase-out range, you can deduct the full amount of your Traditional IRA contribution. If your MAGI is within the range, your deduction is reduced. If your MAGI is above the range, you cannot deduct your Traditional IRA contribution, but you can still make a nondeductible contribution up to the annual limit.
2. Roth IRA Contribution Eligibility
Income Limits for Roth IRA Contributions (2024):- Single or Head of Household: Contribution limit phases out between $146,000 and $161,000.- Married Filing Jointly: Phases out between $230,000 and $240,000.- Married Filing Separately (and lived with spouse at any time during the year): $0 to $10,000.
If your MAGI is below the phase-out range, you can contribute the full amount to a Roth IRA. If your MAGI is within the range, your contribution limit is reduced. If your MAGI is above the range, you cannot contribute to a Roth IRA for that year.
3. Contribution Limits
For 2024:- IRA (Traditional and Roth combined): $7,000 ($8,000 if age 50 or older).- 401(k): $23,000 ($30,500 if age 50 or older).
These limits are independent, so you can contribute the maximum to both a 401(k) and an IRA, subject to the income-based restrictions above.
4. S Corporation Considerations
If you are an owner-employee of an S Corporation, your ability to contribute to an IRA depends on having earned income (i.e., wages paid to you by the S Corporation, not just distributions). The S Corporation must pay you reasonable compensation as wages, which is reported on your W-2, for you to make IRA contributions.
5. Summary Table
6. Key Takeaways
- You can contribute to both a 401(k) and an IRA in the same year.
- If you participate in a 401(k), your ability to deduct Traditional IRA contributions is phased out at higher incomes.
- Roth IRA contributions are not affected by 401(k) participation, but are subject to income limits.
- If your income is too high for a deductible Traditional IRA or Roth IRA, you may still make nondeductible Traditional IRA contributions.
- S Corporation owners must have W-2 wages to make IRA contributions.
If you need a calculation for a specific income or filing status, please provide your MAGI and filing status.
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