Covered by employer pension plan

[NotEasy]

I have always thought that if the 'retirement plan' box on the W-2 is not checked, then the taxpayer (assume that he's single) is not considered an active participant. Therefore he would not be subject to the 'IRA deduction phase out rule' and his IRA deduction would be fully deductible.

But today someone told me it's really not that simple. If the taxpayer is qualified to participate in his employer's pension plan but chooses not to participate in it, he would still be subject to the 'IRA deduction phase out rule' like anyone who is covered by the employer's pension plan.

Is it true or not?

[JG EA]

I'm pretty simple minded but it says in Pub 590 "If you are covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction." It doesn't say if you could be covered.

W-2 instructions say "Retirement plan. Check this box if the employee was an "active participant” (for any part of the year) ...Generally, an employee is an active participant if covered by (a) a defined benefit plan for any tax year that he or she is eligible to participate or (b) a defined contribution plan (for example, a section 401(k) plan) for any tax year that employer or employee contributions (or forfeitures) are added to his or her account. For additional information on employees who are eligible to participate in a plan, contact your plan administrator..."

Also see the instructions for the 1040 for line 32.

[sea-tax]

Not Easy- Look at the TTB Delux edition 2006 page 13-13 it spells it out for you pretty clearly. I would post some of the info but not sure if that would be considered copyright infringement. Maybe Brad or Pual could post a little .

[geekgirldany]

Here is what I found on Investopedia that describes a active participant. It appears it depends on what type of retirement plan it is.

http://www.investopedia.com/articles/retirement/05/032305.asp

401(k) and 403(b) Plans If you make salary-deferral contributions to a 401(k) or 403(b) plan, you are considered an active participant for the year to which your salary-deferral contributions apply. If you are eligible to make salary-deferral contributions but elect not to, you are not considered an active participant for that year.

Defined-Benefit Plan If you are eligible to participate in a defined-benefit plan for the tax year, you are considered an active participant for that year. This is so even if you decline to participate in the plan, fail to make mandatory contributions to the plan or fail to perform the minimum service required to accrue a benefit under the plan for the year.