In year 2011, I worked for 2 companies. I worked for only 1 month (Month of January) for company A and invested in 401K. My total income from company A was approx 10k. I joined company B in February and worked for remaining months (11 months). My MAGI (A B) is coming more than $110K. I am married and spouse is not working.

Am I eligible for IRA deduction?

If your MAGI is $110K or more then it depends whether the "Retirement Plan" box is checked on either of your W2's. If it's checked on either one or both of your W2's you may not deduct the IRA contribution as the phase-out of deduction ends at $110K for couples who file as Married Filing Jointly. If it is not checked on both W2's you may take the IRA deduction.

From page 12 of IRS Pub 590 www.irs.gov/pub/irs-pdf/p590.pdf - "the deduction you can take for contributions made to your traditional IRA depends on whether you or your spouse was covered for any part of the year [emphasis mine] by an employer retirement plan. ...if either you or your spouse was covered by an employer retirement plan, you may be entitled to only a partial (reduced) deduction or no deduction at all, depending on your income and filing status."

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Originally Posted by ebaines

If your MAGI is $110K or more then it depends whether the "Retirement Plan" box is checked on either of your W2's. If it's checked on either one or both of your W2's you may not deduct the IRA contribution as the phase-out of deduction ends at $110K for couples who file as Married Filing Jointly. If it is not checked on both W2's you may take the IRA deduction.

From page 12 of IRS Pub 590 www.irs.gov/pub/irs-pdf/p590.pdf - "the deduction you can take for contributions made to your traditional IRA depends on whether you or your spouse was covered for any part of the year [emphasis mine] by an employer retirement plan. ...if either you or your spouse was covered by an employer retirement plan, you may be entitled to only a partial (reduced) deduction or no deduction at all, depending on your income and filing status."

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Thanks ebaines.
W2 from company A where I worked for a month do has the check under Retirement Plan. So technically I am not able to take deduction, just because I invested one month in 401K. Weird law.
But since my spouse is not working, I can take deduction if I decide to contribute in her IRA account. Correct?

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Originally Posted by dhoon

thanks ebaines.
But since my spouse is not working, I can take deduction if I decide to contribute in her IRA account. correct?

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No. See the section I quoted earlier - it says: ...depends on whether you or your spouse was covered... Since her spouse (namely you) was covered, she cannot take the deduction.

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Originally Posted by dhoon

thanks ebaines.
So technically I am not able to take deduction, just because I invested one month in 401K. weird law.

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Even if you didn't invest in the 401K at all, if you were eligible to contribute, the same restriction would apply.

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Originally Posted by ebaines

No. See the section I quoted earlier - it says: ...depends on whether you or your spouse was covered... Since her spouse (namely you) was covered, she cannot take the deduction.

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Not true. If you look at Table 1-3, it tells you how much she can deduct since she was not covered by a plan. The last two sections (for if the spouse is covered) apply to this situation. Namely, if the couple is married filing jointly, then she can make a full deduction as long as the MAGI is $169K or less.

newacct: you are correct - thanks for catching that. Yes, table 1-3 does indeed show that the MAGI may be $169K for a couple filing MFJ before the phase out for the uncovered spouse kicks in.