Roth or Traditional for wife who is not working

[FB01]

Hi,

So I am in 25% tax bracket and my wife does not work. I have been doing Roth IRA contribution for me and my wife every year. I had a discussion with one of my friend and he said that it would be better if I do Traditional IRA for my wife instead of Roth IRA - this will help me save money on taxes.

What do bogleheads think? Is it better to do Traditional IRA for my wife as she is not working?

Thanks,
FB

[Dilbydog]

I'll assume you file MFJ... does your income preclude you from using the tax advantage of the TIRA for your wife?

[David Jay]

Hi,

So I am in 25% tax bracket and my wife does not work (...outside the home ). I have been doing Roth IRA contribution for me and my wife every year. I had a discussion with one of my friend and he said that it would be better if I do Traditional IRA for my wife instead of Roth IRA - this will help me save money on taxes.

What do bogleheads think? Is it better to do Traditional IRA for my wife as she is not working?

Thanks,
FB

There’s a WIKI for that, here: https://www.bogleheads.org/wiki/Traditional_versus_Roth

The decision making is the same whether it is for your wife or for yourself. The math works out so that if you expect a higher tax bracket in retirement (compared with today), select the Roth. If you expect a lower tax bracket in retirement, select a Traditional.

The other component to remember is the RMD. If you have much of your retirement in a 401K, you should evaluate how the RMD will affect your retirement tax bracket.

[flossy21]

I am pretty sure an individual must have earned income in the calendar year to fund a Roth. You wife is not earning income and therefore would not be able to fund a Roth.

[FiveK]

I am pretty sure an individual must have earned income in the calendar year to fund a Roth. You wife is not earning income and therefore would not be able to fund a Roth.

That statement is not correct.

Rather, it would be correct for an individual filing single.

For MFJ, it is the total income, not the income of each individual, that matters.

David Jay's advice is spot on.

[David Jay]

I am pretty sure an individual must have earned income in the calendar year to fund a Roth. You wife is not earning income and therefore would not be able to fund a Roth.

Not true if MFJ (married filing jointly). I make a contribution for my wife every year.

[investordad]

As Five posted above, you can contribute to a spousal Roth, as it is refereed to is you meet the criteria and its MFJ, and you as the single income make less than 184k. I have been contributing to my wifes for the last 2 years since she stopped working after we had our second child. ( I miss having 2 incomes)

As far as Trad vs Roth, you need to make that decision. I for one do not see any significant tax cuts coming in my life. So roths, I feel are better.

[FiveK]

So roths, I feel are better.

Probably need some qualifiers on that.

100% Roth, assuming one
- was paying some non-zero tax rate when contributing, and
- will have little or no other income in retirement
is definitely not correct.

Why? Because the above conditions will cause a 0% tax rate in retirement, compared with whatever tax rate that could have been saved by using traditional contributions.

With qualifiers (e.g., when a large pension and/or very large traditional balance already exists) a Roth can indeed be better.

[investordad]

Probably need some qualifiers on that.

Well of course, I assumed the OP would read the article that was posted for them, vs me repeating alot of the same things. I was just stating I like Roths, but i also have 401k, and trad ira as well.

[FiveK]

I like Roths, but i also have 401k, and trad ira as well.

I'll drink to that!