Page 12

This limit is reduced by any contributions to a section 501(c)(18) plan on behalf of the spouse with the lesser compensation. Note. If you were divorced or legally separated (and didn’t remarry) before the end of the year, you can’t de- duct any contributions to your spouse's IRA. After a di- vorce or legal separation, you can deduct only the contri- butions to your own IRA. Your deductions are subject to the rules for single individuals. Covered by an employer retirement plan. If you or your spouse was covered by an employer retirement plan at any time during the year for which contributions were made, your deduction may be further limited. This is dis- cussed later under Limit if Covered by Employer Plan. Limits on the amount you can deduct don’t affect the amount that can be contributed. Are You Covered by an Employer Plan? The Form W-2 you receive from your employer has a box used to indicate whether you were covered for the year. The “Retirement plan” box should be checked if you were covered. Reservists and volunteer firefighters should also see Situations in Which You Aren’t Covered, later. If you aren’t certain whether you were covered by your employer's retirement plan, you should ask your em- ployer. Federal judges. For purposes of the IRA deduction, fed- eral judges are covered by an employer plan. For Which Year(s) Are You Covered? Special rules apply to determine the tax years for which you are covered by an employer plan. These rules differ depending on whether the plan is a defined contribution plan or a defined benefit plan. Tax year. Your tax year is the annual accounting period you use to keep records and report income and expenses on your income tax return. For almost all people, the tax year is the calendar year. Defined contribution plan. Generally, you are covered by a defined contribution plan for a tax year if amounts are contributed or allocated to your account for the plan year that ends with or within that tax year. However, also see Situations in Which You Aren’t Covered, later. A defined contribution plan is a plan that provides for a separate account for each person covered by the plan. In a defined contribution plan, the amount to be contributed to each participant's account is spelled out in the plan. The level of benefits actually provided to a participant de- pends on the total amount contributed to that participant's account and any earnings and losses on those contribu- tions. Types of defined contribution plans include profit-sharing plans, stock bonus plans, and money pur- chase pension plans. Example. Company A has a money purchase pension plan. Its plan year is from July 1 to June 30. The plan pro- vides that contributions must be allocated as of June 30. Bob, an employee, leaves Company A on December 31, 2017. The contribution for the plan year ending on June 30, 2018, is made February 15, 2019. Because an amount is contributed to Bob's account for the plan year, Bob is covered by the plan for his 2018 tax year. A special rule applies to certain plans in which it isn’t possible to determine if an amount will be contributed to your account for a given plan year. If, for a plan year, no amounts have been allocated to your account that are at- tributable to employer contributions, employee contribu- tions, or forfeitures, by the last day of the plan year, and contributions are discretionary for the plan year, you aren’t covered for the tax year in which the plan year ends. If, af- ter the plan year ends, the employer makes a contribution for that plan year, you are covered for the tax year in which the contribution is made. Example. Mickey was covered by a profit-sharing plan and left the company on December 31, 2017. The plan year runs from July 1 to June 30. Under the terms of the plan, employer contributions don’t have to be made, but if they are made, they are contributed to the plan before the due date for filing the company's tax return. Such contri- butions are allocated as of the last day of the plan year, and allocations are made to the accounts of individuals who have any service during the plan year. As of June 30, 2018, no contributions were made that were allocated to the June 30, 2018, plan year, and no forfeitures had been allocated within the plan year. In addition, as of that date, the company wasn’t obligated to make a contribution for such plan year and it was impossible to determine whether or not a contribution would be made for the plan year. On December 31, 2018, the company decided to contribute to the plan for the plan year ending June 30, 2018. That contribution was made on February 15, 2019. Mickey is an active participant in the plan for his 2019 tax year but not for his 2018 tax year. No vested interest. If an amount is allocated to your account for a plan year, you are covered by that plan even if you have no vested interest in (legal right to) the ac- count. Defined benefit plan. If you are eligible to participate in your employer's defined benefit plan for the plan year that ends within your tax year, you are covered by the plan. This rule applies even if you: • Declined to participate in the plan, • Didn’t make a required contribution, or • Didn’t perform the minimum service required to accrue a benefit for the year. A defined benefit plan is any plan that isn’t a defined contribution plan. In a defined benefit plan, the level of benefits to be provided to each participant is spelled out in the plan. The plan administrator figures the amount Chapter 1 Traditional IRAs Page 11