Have Tax Questions? Ask a Tax Expert for Answers ASAP
the "Ret. plan" box (#13 on your W-2) with 'x' - means not that you are participating in the retirement plan or not - but if your employer provided the retirement plan for you and you are eligible to participated.
Generally - the fact you have retirement plan at work (regardless if you choose to participate or not) doesn't affect your eligibility to contribute additional funds into your own IRA.
However - if you have retirement plan at work - your deductions to traditional IRA might be limited - http://www.irs.gov/pub/irs-pdf/p590.pdf - use this table to determine if your modified AGI affects the amount of your deduction.
Let me know if you need any help.
There are several types of benefits in connection with IRAs:
-- contribution to traditional IRA may be dedutible on your tax return.
-- tax liability on earnings in Roth IRA may be completely waived.
-- tax liability on earnings in traditional IRA is deferred till distribution
So - you if you can't deduct contribution into the traditional IRA - your better choice is to contribute into the Roth IRA, but if you can't contribute into the Roth IRA because of limitations - you may contribute into traditional IRA, but would not be able to deduct your contribution - so you would be able to get minimal benefits - but still will be benefit from contribution.
"were you covered by a retirement plan?" - the answer is yeas because you are covered - that was your choice not to participate - but you ARE covered.
How the contribution limit is determined?
Assuming you are single below 50 and with AGI $58,000.
If you earn less than $53,000 - your contribution limit would be $5000,
but with AGI $58,000 - your contribution limit will be only $2500 - so - if you contribute $5000 - only $2500 would be deductible , and another $2500 will be not deductible.
In this case - you better to contribute $2500 into traditional IRA and another $2500 into Roth IRA.
The worksheet "Figuring Your Reduced IRA Deduction for 2008 is on the page 19 - http://www.irs.gov/pub/irs-pdf/p590.pdf
please see the Worksheet 1-1. Figuring Your Modified AGI on the page 17.Use this worksheet to figure your modified AGI for traditional IRA purposes.
For most people "modified AGI" and AGI are the same.
Your AGI is on the form 1040A, line 22.
That likely means - you still could make a contribution into traditional IRA, but will not be able to deduct any contributions - in this case Roth IRA contribution would be a better choice.
I feel sorry for your situation.
The student loan interest deduction is limited by $2,500, but the limit will be reduced if your MAGI is more than $55,000 but less than $70,000
With all these knowledge you will have better plan for 2009.
Please do not be too frustrated - with situation that you just started your career and your income relatively small compare to future growth - in long run - you might benefit from contributing into Roth IRA. Especially considering possible tax rate increase.