Adjusted Gross Income Modified
Question: Is the Thrift Savings Plan (TSP) an “employer sponsored retirement plan” for tax purposes?
Does having the TSP affect our ability to contribute to an IRA, with respect to the Modified Adjusted Gross Income phase-out?
Answer: “IRA owners need to know their modified adjusted gross income for various purposes:
Traditional IRA. Participation in a retirement plan maintained by your employer doesn’t affect the amount you can contribute to a traditional IRA — but may affect the amount you can deduct when you make a contribution. Your deduction is reduced or eliminated if your modified AGI exceeds certain levels.
Roth IRA. The rules are different for Roth IRAs. Here, participation in an employer plan doesn’t affect your deduction — you get no deduction in any event. But your contribution is reduced or eliminated if your modified AGI exceeds certain levels. In addition, for years before 2010 you’re not permitted to convert a traditional IRA to a Roth IRA if your modified AGI exceeds $100,000 in the year of the conversion. ”
“Note that you are not required to add back any contribution you made to an employer plan such as a 401k plan. If you are running up against the limit for modified AGI, one way to reduce that number is to make deductible contributions to an employer plan.”The same rules apply to TSP as for a 401k in this case.
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