Am I considered covered by an employer sponsored retirement plan for the year if I do not participate in the plan or if I did not work long enough to be vested?

The answer to this question depends on your type of retirement plan. If your employer's plan has a separate account for each employee, this is called a defined contribution plan. If any amount was contributed or allocated by you or your employer to your account, you are considered covered. It does not matter if you have worked long enough to be vested.

In the other type of plan, the plan employer must make enough contributions (together with earnings) to provide the retirement benefit promised in the retirement plan. This is called a defined benefit plan. In this type of plan, if you meet the minimum age and years of service requirements to participate in your employer's plan, you are considered covered. It does not matter if you are vested.

The Form W-2 you receive from your employer has a box used to indicate whether you were covered for the year. The "Pension Plan" box should have a mark in it if you were covered.

What is the maximum amount that I can contribute to my 401(k) plan?

For 2004, the maximum amount an employee can contribute to a 401(k) plan is $13,000 except for catch-up contributions for employees age 50 or over (see the next topic). The maximum amount applies to an employee's aggregate pre-tax contributions to a 401 (k) plan and 403 (b) plan. There are several different limits that apply to a 401(k) plan in addition to the overall contribution limit. These limits, your salary and the type of 401(k) plan to which you are contributing may limit your 401 (k) contributions to a lesser amount.

The rules for retirement plans are complex. Your plan administrator should have written information about your particular plan that explains these limitations as well as other regulations that apply.

For further information, refer to Tax Topic 424, 401(k) plans.

Do I report my nondeductible Roth IRA contributions on Form 8606?

There are no forms to report a Roth contribution. The financial institution, which is the trustee of your Roth IRA, will send you information on the amount in your Roth IRA. They will also send the information to the Internal Revenue Service. Use Form 8606 (PDF), Nondeductible IRAs, if you made a nondeductible contribution to a traditional IRA; converted from a traditional IRA, a SEP, or Simple IRA to a Roth IRA, received a distribution from a traditional IRA, a SEP, or a Simple IRA and made nondeductible contributions to a traditional IRA, or received a distribution from a Roth or traditional IRA.

Can a person make a contribution to a SEP-IRA and a Roth IRA, too?

Yes, you can make a contribution to a SEP-IRA and a Roth IRA. See Publication 590, Individual Retirement Arrangements, for the requirements to contribute to a SEP and a Roth IRA. However, your SEP IRA contribution and Roth IRA contribution can not be made to the same IRA.

I want to establish a traditional individual retirement arrangement (IRA) for my spouse, and I need additional information. What is the most I can contribute to a spousal IRA during the tax year?

If both you and your spouse work and both have taxable compensation, each of you can contribute up to $3,000 (or the amount of each IRA owner's compensation, if less) to a separate traditional IRA. Even if one spouse has little or no compensation, up to $3,000 can be contributed to each IRA if combined compensation is at least equal to the amount contributed to both IRAs and you file a joint return. You can contribute $3,000 to a separate IRA for your nonworking spouse if you file a joint return. Your total contribution to both your IRA and the spousal IRA for this year is limited to the smaller of $6,000, or your taxable compensation reduced by any contributions you make to a traditional IRA or Roth IRA. You cannot contribute more than $3,000 to either IRA for the year. If you are 50 or older in 2004, the most that can be contributed to your traditional IRA for 2003 is the lesser of:

For additional information, refer to Tax Topic 451, Individual Retirement Arrangements (IRAs), or Publication 590, Individual Retirement Arrangements (IRAs) .

Can I take an IRA deduction for the amount I contributed to a 401(k) plan last year?

No. A 401(k) plan is not an IRA. However, the amount you contributed is not included as income in box 1 of your W-2 form so you don't pay tax on it for 2004. For more information, refer to Tax Topic 424, 401(k) Plans, Publication 575, Pension and Annuity Income, or Publication 560, Retirement Plans for Small Business.