What is a restriction for individuals contributing to an IRA who also participate in an employer-sponsored plan?

Individuals who contribute to an IRA while also participating in an employer-sponsored retirement plan face specific income-related restrictions regarding the deductibility of their IRA contributions. If their income exceeds certain thresholds set by the Internal Revenue Service (IRS), their ability to make tax-deductible contributions to a traditional IRA may be limited or phased out entirely.

This means that while they can still contribute to an IRA, the advantage of deducting those contributions from their taxable income may not apply if their earnings surpass the specified limits. Therefore, understanding these income thresholds is crucial for anyone balancing both IRA contributions and employer-sponsored plan participation, as it directly impacts their tax situation and retirement savings strategy.

In contrast, the other options do not accurately reflect IRS guidelines. There are no restrictions preventing contributions altogether (as long as the individual has earned income), and participants are not mandated to contribute the maximum amount. Furthermore, the type of employer plan— whether contributory or non-contributory— does not impose additional restrictions on IRA contributions.