Do You Have Active Participant Status?

by Investing School on May 30, 2012

The basic definition of someone who has active participant status is an individual who gets contributions under an employee sponsored plan. There are a number of plans which allow you to qualify for such status. Some examples are:

  • SEP IRAs
  • Profit sharing plans
  • Defined benefit plans
  • Money purchase pension or target benefit plans
  • 401(k)s
  • Qualified annuity plans
  • Employee Funded Pension Trusts created before June 25, 1959
  • Any plan established by the United States, a State or political subdivision of the US, an agency or instrumentality of the US or any of its subdivisions, for the employees thereof

Under normal circumstances the employer will note that the individual is an active participant on their W-2 form. This is done by checking the ‘Retirement Plan’ box. It is up to the employee to ascertain that this is done. Additionally, active participant status may depend upon when contributions are made and upon the specifics of the plan used.

Being an active participant involves certain caveats. For example, an active participant may not take the full deduction for their traditional IRA in addition to the deduction offered by the plan. If married to an active participant this eligibility will be dependent upon the modified adjusted gross income and tax filing status of the couple. Charts of these limits are accessible online.

As the specifics of eligibility can be quite complex, based upon multiple factors, it is best to consult with a tax professional before submitting one’s income taxes.

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