"Spousal IRA" limits for higher income

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
HoustonJim
Posts: 2
Joined: Mon Mar 18, 2019 9:03 pm

"Spousal IRA" limits for higher income

Post by HoustonJim »

My head is spinning from reading the IRS publication 590a, studying the Kay Bailey Hutchinson "spousal IRA" rules, and historic forum posts here. I'm requesting advice from you fine people now. Thank you in advance!

Here is my situation. My MAGI for 2018 falls inside of the phase out range for Roth IRA income limitations (next year I'll be over it). So before I finish filing my 2018 taxes I'll be contributing the phase-out maximum to my Roth IRA accordingly. I also contribute to an employer sponsored Roth 401k.

My wife does not work and made no income in 2018.

How much can she contribute to her 2018 Roth IRA?

My understanding is:
(1) My 2018 MAGI
(2) subtract my 2018 Roth/traditional IRA contributions
(3) resulting MAGI is the number my wife uses to determine how much she can contribute to a Roth.

Do I have that right?


P.S.
(I've never done a "backdoor Roth conversion" but I'm looking into it. Right now I have a lot of money in traditional IRA'S that are rollovers from old 401ks).
rkhusky
Posts: 10909
Joined: Thu Aug 18, 2011 8:09 pm

Re: "Spousal IRA" limits for higher income

Post by rkhusky »

HoustonJim wrote: Thu Mar 21, 2019 11:24 am My head is spinning from reading the IRS publication 590a, studying the Kay Bailey Hutchinson "spousal IRA" rules, and historic forum posts here. I'm requesting advice from you fine people now. Thank you in advance!

Here is my situation. My MAGI for 2018 falls inside of the phase out range for Roth IRA income limitations (next year I'll be over it). So before I finish filing my 2018 taxes I'll be contributing the phase-out maximum to my Roth IRA accordingly. I also contribute to an employer sponsored Roth 401k.

My wife does not work and made no income in 2018.

How much can she contribute to her 2018 Roth IRA?

My understanding is:
(1) My 2018 MAGI
(2) subtract my 2018 Roth/traditional IRA contributions
(3) resulting MAGI is the number my wife uses to determine how much she can contribute to a Roth.

Do I have that right?


P.S.
(I've never done a "backdoor Roth conversion" but I'm looking into it. Right now I have a lot of money in traditional IRA'S that are rollovers from old 401ks).
You add Traditional IRA deductions to your AGI to get your MAGI. Roth IRA isn't a part of the calculation.

You and your wife can contribute the same amount to Roth. Your wife may be able to make a (reduced) deductible IRA contribution.

If you had contributed to a Traditional 401k, you would likely have been able to make full IRA contributions.

Large existing Traditional IRA's make Backdoor Roth's more costly.

2018 MAGI Phaseout for Roth is $189K - $199K.

2018 MAGI Phaseout for Traditional IRA deduction (without work retirement plan, but spouse does) is $189K - $199K.
Last edited by rkhusky on Thu Mar 21, 2019 12:07 pm, edited 1 time in total.
User avatar
RickBoglehead
Posts: 5953
Joined: Wed Feb 14, 2018 9:10 am
Location: In a house

Re: "Spousal IRA" limits for higher income

Post by RickBoglehead »

To be clear, your wife has no earned income, so SHE cannot contribute to her ROTH IRA. However, YOU can contribute to her ROTH IRA for her, based on your income.

From the IRS site, here's how to calculate what you can contribute (and the same limit applies to her ROTH IRA):

Amount of your reduced Roth IRA contribution
If the amount you can contribute must be reduced, figure your reduced contribution limit as follows.

Start with your modified AGI.
Subtract from the amount in (1):
$189,000 if filing a joint return or qualifying widow(er),
$-0- if married filing a separate return, and you lived with your spouse at any time during the year, or
$120,000 for all other individuals.
Divide the result in (2) by $15,000 ($10,000 if filing a joint return, qualifying widow(er), or married filing a separate return and you lived with your spouse at any time during the year).
Multiply the maximum contribution limit (before reduction by this adjustment and before reduction for any contributions to traditional IRAs) by the result in (3).
Subtract the result in (4) from the maximum contribution limit before this reduction. The result is your reduced contribution limit.


Of course if you use software like TurboTax, it will help calculate this for you.
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.
Topic Author
HoustonJim
Posts: 2
Joined: Mon Mar 18, 2019 9:03 pm

Re: "Spousal IRA" limits for higher income

Post by HoustonJim »

Thank you both.

The bottom line, I think, is that whatever my maximum is for a Roth IRA is also the maximum for the spousal IRA.
User avatar
Earl Lemongrab
Posts: 7270
Joined: Tue Jun 10, 2014 1:14 am

Re: "Spousal IRA" limits for higher income

Post by Earl Lemongrab »

RickBoglehead wrote: Thu Mar 21, 2019 12:05 pm To be clear, your wife has no earned income, so SHE cannot contribute to her ROTH IRA. However, YOU can contribute to her ROTH IRA for her, based on your income.
To be clear, you're wrong. A spouse can't contribute to your account. The spousal IRA allows someone to make a contribution to their own IRA, using marital assets, as long as MFJ.

Here's an IRA example:
Example.(p9)
Kristin, a full-time student with no taxable compensation, marries Carl during the year. Neither of them was age 50 by the end of 2018. For the year, Carl has taxable compensation of $30,000. He plans to contribute (and deduct) $5,500 to a traditional IRA. If he and Kristin file a joint return, each can contribute $5,500 to a traditional IRA. This is because Kristin, who has no compensation, can add Carl's compensation, reduced by the amount of his IRA contribution ($30,000 − $5,500 = $24,500), to her own compensation (-0-) to figure her maximum contribution to a traditional IRA. In her case, $5,500 is her contribution limit, because $5,500 is less than $24,500 (her compensation for purposes of figuring her contribution limit).
oslocal
Posts: 126
Joined: Sat May 21, 2016 5:30 pm

Re: "Spousal IRA" limits for higher income

Post by oslocal »

HoustonJim wrote: Thu Mar 21, 2019 4:13 pm Thank you both.

The bottom line, I think, is that whatever my maximum is for a Roth IRA is also the maximum for the spousal IRA.
I didn't actually see anything to confirm this, but my understanding is the same...

I.e., if my MAGI for Roth IRA purposes is 202,000, then the contribution limit would be:

206,000 less 201,000 = 5,000.
5,000 / 10,000 = 0.500
0.500 x 6,000 = 3,000.

Then both me and my spouse can contribute 3,000 to a Roth IRA?

Clarification: This is for 2020 year, and neither of us are eligible for catch up contributions.
investmax
Posts: 57
Joined: Thu Mar 11, 2021 8:00 pm

Re: "Spousal IRA" limits for higher income

Post by investmax »

oslocal wrote: Mon May 03, 2021 10:56 am
I.e., if my MAGI for Roth IRA purposes is 202,000, then the contribution limit would be:

206,000 less 201,000 = 5,000.
5,000 / 10,000 = 0.500
0.500 x 6,000 = 3,000.

Then both me and my spouse can contribute 3,000 to a Roth IRA?

Clarification: This is for 2020 year, and neither of us are eligible for catch up contributions.
Maybe this is a typo but the math should work out something like this

I.e., if my MAGI for Roth IRA purposes is 202,000, then the contribution limit would be:

206,000 less 202,000 = 4,000.
4,000 / 10,000 = 0.400
0.400 x 6,000 = 2,400.
Katietsu
Posts: 4823
Joined: Sun Sep 22, 2013 1:48 am

Re: "Spousal IRA" limits for higher income

Post by Katietsu »

HoustonJim wrote: Thu Mar 21, 2019 4:13 pm Thank you both.

The bottom line, I think, is that whatever my maximum is for a Roth IRA is also the maximum for the spousal IRA.
Yes. But, your wife can also make a partial contribution to a traditional IRA and deduct it. This is in addition to the Roth contribution for the wife. Whether or not the deductible contribution is a desirable addition would need to be evaluated as part of your complete investing plans.

Edit: I am wrong based on the post following. I did not realize this had changed some time ago as it has not been relevant to me for awhile.
Last edited by Katietsu on Mon May 03, 2021 10:35 pm, edited 1 time in total.
Alan S.
Posts: 10603
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: "Spousal IRA" limits for higher income

Post by Alan S. »

Katietsu wrote: Mon May 03, 2021 3:36 pm
HoustonJim wrote: Thu Mar 21, 2019 4:13 pm Thank you both.

The bottom line, I think, is that whatever my maximum is for a Roth IRA is also the maximum for the spousal IRA.
Yes. But, your wife can also make a partial contribution to a traditional IRA and deduct it. This is in addition to the Roth contribution for the wife. Whether or not the deductible contribution is a desirable addition would need to be evaluated as part of your complete investing plans.
Not so.
See line 9 of Worksheet 2-2 copied below:
Worksheet 2-2. Determining Your Reduced Roth IRA Contribution Limit
Before using this worksheet, check Table 2-1 to determine whether or not your Roth IRA contribution limit is reduced. If it
is, use this worksheet to determine how much it is reduced.
1. Enter your modified AGI for Roth IRA purposes (Worksheet 2-1,
line 11) .................................................................. 1.
2. Enter:
• $196,000 if filing a joint return or qualifying widow(er),
• $-0- if married filing a separate return and you lived with your spouse
at any time in 2020, or
• $124,000 for all others ................................................ 2.
3. Subtract line 2 from line 1 ................................................ 3.
4. Enter:
• $10,000 if filing a joint return or qualifying widow(er) or married filing a
separate return and you lived with your spouse at any time during the
year, or
• $15,000 for all others ........................ ........................ 4.
5. Divide line 3 by line 4 and enter the result as a decimal (rounded to at
least three places). If the result is 1.000 or more, enter 1.000 ............ 5.
6. Enter the lesser of:
• $6,000 ($7,000 if you are age 50 or older), or
• Your taxable compensation ..................... ..................... 6.
7. Multiply line 5 by line 6 ................................................... 7.
8. Subtract line 7 from line 6. Round the result up to the nearest $10. If the
result is less than $200, enter $200 ...................................... 8.
9. Enter contributions for the year to other IRAs ............................ 9.
10. Subtract line 9 from line 6 ................................................ 10.
11. Enter the lesser of line 8 or line 10. This is your reduced Roth IRA
contribution limit ..
Post Reply