There is also a special rule for profit sharing plans

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There is also a special rule for profit sharing plans . They offer discretionary contributions which the employee cannot control. An employee is considered an active participant in a profit sharing plan for any year where a discretionary contribution is made. The contribution is counted for active participation purposes for the year in which the contribution is actually received. One event that could disrupt this concept is if there were to be a re-allocation of forfeitures from a non-vested departing employee. The forfeiture contribution would trigger active participation status even if the employer did not directly
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make another contribution in the tax year. Consider an employee who is subject to a discretionary profit sharing plan. The employer makes a contribution for the plan year 2018, but the contribution is not made until June of 2019. The employee is not an active participant in 2018, but they are an active participant in 2019. This rule was implemented so that employees could plan their own IRA contributions which are due by April 15 th . All taxpayers have the same eligibility requirements for traditional IRA contributions . They must be younger than 70 ½ years old. They must also have earned income. Consider a taxpayer who is self- employed, and their business loses money in a given year. If the taxpayer also maintains a second job to make ends meet, then they could technically be eligible for an IRA contribution because they now have earned income. There is only an income limit if the taxpayer is also an active participant. he table above provides the various income limits if a taxpayer is considered an active participant. A taxpayer who is married and files a joint tax return ( MFJ ) with their spouse will be able to make a full deductible contribution of $5,500 if their income is $101,000 or less (2018 limit). They will not be able to make a deductible contribution if they earn $121,000 or more. When a taxpayer crosses the lower bound of the income threshold ($101,000) they begin to have access to a reduced deductible contribution. This is called a phase out scenario. What happens when an MFJ taxpayer’s income falls within this phase out range, between $101,000 and $121,000? The formula above is used to calculate the amount of the available deductible contribution if a taxpayer falls within the phase out range. Consider a married couple. They are both in their 40s, and they are both active participants. They have a combined adjusted gross income (AGI) of $115,000 in 2018. What deductible contribution is available to them? Applying the formula below, you will find that each person in this marriage has available a deductible contribution of $1,650. They could each contribute this dollar amount for a combined $3,300 between them.
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What if this couple instead has an AGI of $165,000, but only the husband was employed? The wife stayed at home to raise 2 young children. They fall into a special loophole for couples when only one person is an active participant. In this scenario, the non-working spouse of an active participant has available the full deductible contribution of $5,500 if their AGI is below $189,000 (2018 limit). This is the
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