IRA vs Temp Agency 401k

[bornitz]

What is the name of your state (only U.S. law)? California

Hi,

I've worked for a temp (contracting) agency as a W-2 contractor since April 2012. The contract was initially set to run for 1 year, but the client kept me on. How much longer it will last is something I have no way of knowing.

Up until now, they have not offered either medical benefits or a 401k plan. So every year, I buy private insurance and contribute the max allowed by the IRS to an IRA. Since I'm over 50, I've been able to invest and deduct the full $6500 each year when I file my taxes.

For 2015, they're offering both medical (albeit bronze level PPO pre-tax) insurance as well as a 401k through Great West Financial. I've already signed up for their health insurance since even the cobra amount is cheaper than anything decent offered through the Covered CA site and way cheaper than private insurance.

I'd love to join the 401k plan but have a concern.

If I join the plan, I will no longer be able to deduct the IRA amount for 2015, and if for whatever reason, I'm let go early on in the year, the total amount invested won't be anywhere near the amount I'd be able to deduct had I just stuck with a deductible IRA. Based on what I'd like to have them set aside, it will take me roughly 11 pay cycles (22 weeks) to hit the $6500 mark. And because everything is handled manually at the temp agencies end through their benefits department, there's no way to log in and easily change the amount withheld to accelerate the process. Every change would need to be handled manually by them.

Do I have any other options? Let's say they start deducting my 401k contribution but let me go mid January am I just stuck for the remainder of the year without the IRA write-off?

I greatly appreciate all suggestions and comments.

Thank you in advance,
Bonnie

 

[FlyingRon]

How much is your modified AGI? If you're below the AGI limits (61,000 for 2015) you're can still deduct your contributions to the IRA up to the $5,500 (or 6,500 if 50 or older).

Even if you make excess contributions, as long as you remove the money (both the excess contribution and income derived form it) from the plan at the end of the year and pay tax on it, you're ok.

 

[bornitz]

How much is your modified AGI? it's well over that, possibly over $100,000, so I don't quality based on AGI limit

Even if you make excess contributions, as long as you remove the money (both the excess contribution and income derived form it) from the plan at the end of the year and pay tax on it, you're ok.


So are you saying that if I take out whatever little gets invested if I get laid off and pay taxes on it, I'll still be able to contribute and deduct $6500 when I file my 2015 taxes?

Wouldn't there be a penalty for withdrawing early since I'm 54?

Thank you so much!
Bonnie

 

[LdiJ]

How much is your modified AGI? it's well over that, possibly over $100,000, so I don't quality based on AGI limit

Even if you make excess contributions, as long as you remove the money (both the excess contribution and income derived form it) from the plan at the end of the year and pay tax on it, you're ok.


So are you saying that if I take out whatever little gets invested if I get laid off and pay taxes on it, I'll still be able to contribute and deduct $6500 when I file my 2015 taxes?

Wouldn't there be a penalty for withdrawing early since I'm 54?

Thank you so much!
Bonnie

No, what is being said is that if you contribute to an IRA, and then discover that you should not have done so, you can take the excess contribution out of the IRA, as long as you do it before the end of the end.

 

[davew128]

None of the responses are correct. You can always contribute to the IRA as long as you have earned income, you will have simply made non-deductible contributions when your AGI is at that level and you're in a 401(k). Excess contributions only occur when you contribute beyond the contribution limits, which isn't the case here.

 

[FlyingRon]

None of the responses are correct. You can always contribute to the IRA as long as you have earned income, you will have simply made non-deductible contributions when your AGI is at that level and you're in a 401(k). Excess contributions only occur when you contribute beyond the contribution limits, which isn't the case here.

Of course, I skipped the idiot case of making after tax contributions to a non-Roth IRA. Why on earth would you want to do that?

 

[LdiJ]

Of course, I skipped the idiot case of making after tax contributions to a non-Roth IRA. Why on earth would you want to do that?

I really agree. Its a mess to track over the long haul, and then a fight with the IRS to prove that you have basis, later on down the road when you start taking distributions. I have several clients in that position right now and its more trouble than its worth.

 

[bornitz]

Thank you!

Thank you all very much. I appreciate your input.

Regards,
Bonnie

 

[davew128]

Of course, I skipped the idiot case of making after tax contributions to a non-Roth IRA. Why on earth would you want to do that?

You mean besides the tax deferred growth and subsequent opportunity in future years to possibly convert to a Roth with some basis as was available the last couple years? No, just idiot reasons.

And I don't consider tracking basis on Form 8606 to be such a chore....unless you still do returns by hand.