Understanding Active-Participant Status
An active plan participant can receive benefit payments from a pension plan, whether a defined benefit or a defined contribution pension plan, as long as the requirements under the plan’s contract have been fulfilled.
Active participant status applies to individuals who are currently participating in one or more of the following types of retirement plans:
Qualified pension plans, such as profit sharing, money purchase, or target benefit plans
- 401(k) plans
- SEP IRAs
- SIMPLE IRAs
- 403(b) Plans (Tax Sheltered Annuities)
- Government Retirement Plans
Under most defined-benefit pension plans, members are required to complete a minimum number of years of service to qualify for their maximum allowable pension. Thus, the tax law definition of an “active participant” for a company plan could include employees not currently participating in the employer’s plan.
Active Participants (Retirement Plan Box Checked) and IRA Contributions
The specification of an active participant has important implications as to whether or not someone is eligible to claim a tax deduction for a contribution to a traditional IRA, and specific rules around the designation can be hard to clarify. If you and/or your spouse are active participants for a given year, you may need to calculate whether you can deduct your IRA contributions for that year.
If you cannot deduct the full amount, you may be able to deduct a smaller portion, depending on your Modified Adjusted Gross Income (MAGI).
Tax Deduction Phase-Out Ranges
The IRS outlines the income phase-out ranges for deducting a contribution to a traditional IRA in 2023 and 2024 below.
In 2024, if you’re single, covered by a workplace retirement plan, and earn more than $77,000 but less than $87,000 in income, you can deduct a portion of your traditional IRA contributions. You are eligible for the full deduction if you earn $77,000 or less and are ineligible for any deduction if you earn $87,000 or more.
In 2024, if you are married, filing jointly, or a qualified widow(er), and a workplace plan covers your spouse, the income limit range is $123,000 to $143,000.
However, if you’re an IRA contributor who isn’t covered by a workplace retirement plan but married to someone who is covered, the income phase-out range for you both as a couple is $230,000 to $240,000.
Individuals should check with their employers to be sure. Ultimately, you may want to consult with your tax professional to determine whether your IRA contribution is deductible.
What Is an Active Participant in a 401(k) Plan?
An active participant in a 401(k) plan is an individual employed at a company in the year in question and eligible to participate in the plan even if they do not make contributions.
Can an Active Participant Contribute to a Roth IRA?
Yes, an active participant can contribute to a Roth IRA. It is common for people to contribute to both employer-sponsored plans and Roth IRAs. Individuals must be mindful of their modified adjusted gross income (MAGI) to see if they can contribute to a Roth IRA.
Can I Contribute to Both a Traditional IRA and a Roth IRA?
Yes, you can contribute to both a traditional IRA and a Roth IRA. However, you must ensure that the total contributions into both accounts don’t exceed the contribution limits provided by the IRS: $7,000 with an additional $1,000 catch-up contribution each year if you are 50 or older.
Understanding Your Retirement Planning Options
Active participant status refers to an individual’s current participation in employer-sponsored retirement plans such as 401(k) plans or defined-benefit pensions. Therefore, the individual is eligible to receive plan benefits upon retirement.
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