[kaydun]

NINJA Question –

Here’s the sim:

Keisha Patel (age 41) is an employee in ABC Consulting Group. She lives in the suburbs and commutes to work daily by taking the train. Her salary is $10,000 per month. As one of the company benefits, employees are able to pick up a transit pass for the month. In Keisha’s case, her transit pass has a value of $260 per month. Keisha has a son, Timothy, who is age 15 and a daughter, Mandy, who is age 19. Timothy lives with his father, Keisha’s former spouse. Mandy resides on campus but is supported by her mother. Keisha gives her former spouse $2,500 per month as part of the divorce decree (child support and alimony) until Timothy turns 18, and then the amount drops to $1,300 per month (alimony only).

Keisha is requesting that you, as one of the company’s tax accountants, handle her tax material for the current year. Complete the abbreviated 2015 Form 1040 – AGI section for Keisha. Record your answers in the shaded cells appearing in the form below. If the value of a cell is zero, you must enter a zero (“0”) to receive credit for your answer. Use dollar amounts only (i.e., no cents).

Be aware that Keisha just realized that she contributed $4,000 to her traditional IRA and she found a receipt for paying $1,500 of interest on her student loan. Keisha’s total income on line 22 is $142,585.

I’m wondering why you can’t deduct the 4,000 she contributed to her IRA. I know her income was over the limit, but it didn’t say anywhere in the problem that she participated in a employer sponsored retirement plan, yet in the answer they said: For 2015, a taxpayer that files as Head of Household and is covered by an employer-sponsored qualified retirement plan is able to make tax-deductible contributions to a traditional IRA plan only if their modified AGI is $61,000 or less. In addition, a partially deductible contribution is permitted to a taxpayer only if their modified AGI is between $61,000 and less than $71,000. Since Keisha’s AGI is well above those limits, she can make a $5,500 contribution to her traditional IRA but none of it will be deductible. It should be noted that $5,500 is the maximum contribution in 2015 (see IRC Section 219(b)(1)(A)).

I know you have to have both excessive AGI and participate in a plan in order to disqualify the deduction, so I’m a little confused.. am I missing something?

FAR - 76 Oct 2015 (Becker)
REG - 87 Apr 2016 (Becker + Ninja MCQ) - 3rd time's the charm!
AUD - 82 Feb 2016 (Becker)
BEC - 85 May 2016 (Becker)