Roth IRA Tax Income Question

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Topic Author
miketherunner10
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Joined: Fri Apr 12, 2019 7:16 pm

Roth IRA Tax Income Question

Post by miketherunner10 » Fri Apr 12, 2019 7:38 pm

I'll try to keep this concise. I'm investing in a Roth IRA for the first time through the Vanguard website. I'm 28 and my wife is 29. Our adjusted growth income is a little more than $50,000 for this past tax year. We filed as married filed jointly. I am self employed and my business income reported a negative number. Again, my income is a negative number for the 2018 tax year. The $50,000+ income is from my spouses end.

Ideally, I want her to contribute to a Roth Ira for this past tax year (2018) and I wanted money to be contributed to a Roth Ira in my name on her behalf. I understand this needs to be done by April 15th. Also, I understand that it's not called a "spousal Ira" rather it's two separate accounts.

My question: Can my wife contribute/put money into a separate Roth Ira account in my name for me even if I have a negative income number? If she can, can we both contribute $5,500 to our two separate Roth Ira accounts for the 2018 tax year?

The reason I ask is because the IRS website to me clearly mentions that she could contribute to a Roth Ira in my name IF I was nonworking. So that is why is pose the question. I did work but didn't report a positive number so I wanted to see if she could still contribute for me if I did work BUT did have a negative income number.

I'm going to try to ask a tax professional tomorrow but I've been getting conflicting information.
Thank you.

Dontridetheindexdown
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Re: Roth IRA Tax Income Question

Post by Dontridetheindexdown » Fri Apr 12, 2019 7:55 pm

If you are married filing jointly, and either of you has W-2 income of at least $11,000, then you can each contribute $5,500 to a Roth.

Only question remaining is, can you do it such that you meet the April 15 deadline for 2018 contributions?

Good luck in your endeavors!

You are wise to be doing this at your age, and if you maintain, you will certainly become wealthy.

TropikThunder
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Re: Roth IRA Tax Income Question

Post by TropikThunder » Fri Apr 12, 2019 8:07 pm

miketherunner10 wrote:
Fri Apr 12, 2019 7:38 pm
My question: Can my wife contribute/put money into a separate Roth Ira account in my name for me even if I have a negative income number? If she can, can we both contribute $5,500 to our two separate Roth Ira accounts for the 2018 tax year?

The reason I ask is because the IRS website to me clearly mentions that she could contribute to a Roth Ira in my name IF I was nonworking. So that is why is pose the question. I did work but didn't report a positive number so I wanted to see if she could still contribute for me if I did work BUT did have a negative income number.
Two things at work here. One, you are eligible for a full contribution based on your spouse's income. Per the IRS:
I want to set up an IRA for my spouse. How much can I contribute?
If you file a joint return and have taxable compensation, you and your spouse can both contribute to your own separate IRAs.

Your total contributions to both your IRA and your spouse’s IRA may not exceed your joint taxable income or the annual contribution limit on IRAs times two, whichever is less. It doesn't matter which spouse earned the income.
https://www.irs.gov/retirement-plans/re ... tributions
Example.
Tom and Darcy are married and both are 53. They both work and each has a traditional IRA. Tom earned $3,800 and Darcy earned $48,000 in 2018. Because of the Kay Bailey Hutchison Spousal IRA limit rule, even though Tom earned less than $6,500, they can contribute up to $6,500 to his IRA for 2018 if they file a joint return. They can contribute up to $6,500 to Darcy's IRA. If they file separate returns, the amount that can be contributed to Tom's IRA is limited by his earned income, $3,800.
https://www.irs.gov/publications/p590a# ... 1000230412

The IRS regs don't specify a working spouse and a non-working spouse even though that's one of their examples.

TL/DR: As long as one spouse earns 2x the annual limit, both spouses can make full contributions (as Dontridetheindexdown said).

As far as the self-employment income, if you operate at a net loss then you don't have qualifying income for a small business type plan like a SEP or SIMPLE IRA but I defer to forum experts as to how that works for a standard IRA.
Last edited by TropikThunder on Fri Apr 12, 2019 8:20 pm, edited 1 time in total.

Topic Author
miketherunner10
Posts: 7
Joined: Fri Apr 12, 2019 7:16 pm

Re: Roth IRA Tax Income Question

Post by miketherunner10 » Fri Apr 12, 2019 8:17 pm

Dontridetheindexdown wrote:
Fri Apr 12, 2019 7:55 pm
If you are married filing jointly, and either of you has W-2 income of at least $11,000, then you can each contribute $5,500 to a Roth.

Only question remaining is, can you do it such that you meet the April 15 deadline for 2018 contributions?

Good luck in your endeavors!

You are wise to be doing this at your age, and if you maintain, you will certainly become wealthy.
Thank you for your response. I believe I can still contribute to the 2018 contributions as long as it's submitted by April 15th. I could but wrong but will find out today or tomorrow. I thought the money was taken out of your account the day that you draw it out.

Topic Author
miketherunner10
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Re: Roth IRA Tax Income Question

Post by miketherunner10 » Fri Apr 12, 2019 8:20 pm

TropikThunder wrote:
Fri Apr 12, 2019 8:07 pm
miketherunner10 wrote:
Fri Apr 12, 2019 7:38 pm
I'll try to keep this concise. I'm investing in a Roth IRA for the first time through the Vanguard website. I'm 28 and my wife is 29. Our adjusted growth income is a little more than $50,000 for this past tax year. We filed as married filed jointly. I am self employed and my business income reported a negative number. Again, my income is a negative number for the 2018 tax year. The $50,000+ income is from my spouses end.

Ideally, I want her to contribute to a Roth Ira for this past tax year (2018) and I wanted money to be contributed to a Roth Ira in my name on her behalf. I understand this needs to be done by April 15th. Also, I understand that it's not called a "spousal Ira" rather it's two separate accounts.

My question: Can my wife contribute/put money into a separate Roth Ira account in my name for me even if I have a negative income number? If she can, can we both contribute $5,500 to our two separate Roth Ira accounts for the 2018 tax year?

The reason I ask is because the IRS website to me clearly mentions that she could contribute to a Roth Ira in my name IF I was nonworking. So that is why is pose the question. I did work but didn't report a positive number so I wanted to see if she could still contribute for me if I did work BUT did have a negative income number.

I'm going to try to ask a tax professional tomorrow but I've been getting conflicting information.
Thank you.
Two things at work here. One, you are eligible for a full contribution based on your spouse's income. Per the IRS:
I want to set up an IRA for my spouse. How much can I contribute?
If you file a joint return and have taxable compensation, you and your spouse can both contribute to your own separate IRAs.

Your total contributions to both your IRA and your spouse’s IRA may not exceed your joint taxable income or the annual contribution limit on IRAs times two, whichever is less. It doesn't matter which spouse earned the income.
https://www.irs.gov/retirement-plans/re ... tributions

The IRS regs don't specify a working spouse and a non-working spouse, but many finance info websites present that as the most common scenario (which may or may not be true).
TL/DR: As long as one spouse earns 2x the annual limit, both spouses can make full contributions (as Dontridetheindexdown said).

As far as the self-employment income, if you operate at a net loss then you don't have qualifying income for a small business type plan like a SEP or SIMPLE IRA but I defer to forum experts as to how that works for a standard IRA.
Thank you for your response. I thought this was the case but I wanted to make sure. I didn't want to have a potential letter written to me that I did this improperly or trigger an unnecessary audit. I will try to submit $5,500 to each for the 2018 tax deadline if it allows.

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Duckie
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Re: Roth IRA Tax Income Question

Post by Duckie » Fri Apr 12, 2019 8:27 pm

miketherunner10 wrote:Can my wife contribute/put money into a separate Roth Ira account in my name for me even if I have a negative income number? If she can, can we both contribute $5,500 to our two separate Roth Ira accounts for the 2018 tax year?

The reason I ask is because the IRS website to me clearly mentions that she could contribute to a Roth Ira in my name IF I was nonworking. So that is why is pose the question. I did work but didn't report a positive number so I wanted to see if she could still contribute for me if I did work BUT did have a negative income number.
You're misunderstanding what the website says. She doesn't contribute to your Roth IRA, she contributes to her Roth IRA and you contribute to your Roth IRA. As long as you file taxes as Married Filing Jointly, even if you have $0 income you can still contribute based on joint income.

TropikThunder
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Re: Roth IRA Tax Income Question

Post by TropikThunder » Fri Apr 12, 2019 8:31 pm

miketherunner10 wrote:
Fri Apr 12, 2019 8:20 pm
Thank you for your response. I thought this was the case but I wanted to make sure. I didn't want to have a potential letter written to me that I did this improperly or trigger an unnecessary audit. I will try to submit $5,500 to each for the 2018 tax deadline if it allows.
Glad to help. I added one of the examples from the IRS that is closest to your scenario.

Keep in mind, you don't have to have the money invested in anything specific in the IRA, or have it (yet) at the custodian you want to use going forward (Vanguard, Fidelity, Schwab, etc). You just have to open it and put the money in. If you run into a time crunch with one of the custodians online, the fastest way might be at a physical branch (like Fidelity). That way they can verify identity etc without you having to fax your license for example.

TropikThunder
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Re: Roth IRA Tax Income Question

Post by TropikThunder » Fri Apr 12, 2019 8:32 pm

Duckie wrote:
Fri Apr 12, 2019 8:27 pm
You're misunderstanding what the website says. She doesn't contribute to your Roth IRA, she contributes to her Roth IRA and you contribute to your Roth IRA. As long as you file taxes as Married Filing Jointly, even if you have $0 income you can still contribute based on joint income.
It doesn't matter where the contribution comes from, it can come from her checking account if desired.

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RickBoglehead
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Re: Roth IRA Tax Income Question

Post by RickBoglehead » Fri Apr 12, 2019 8:34 pm

Duckie wrote:
Fri Apr 12, 2019 8:27 pm

You're misunderstanding what the website says. She doesn't contribute to your Roth IRA, she contributes to her Roth IRA and you contribute to your Roth IRA. As long as you file taxes as Married Filing Jointly, even if you have $0 income you can still contribute based on joint income.


I have seen this reworded several times and I wonder why. The IRS says a spousal IRA is a strategy that allows a working spouse to contribute to an IRA in the name of a non-working spouse to circumvent income requirements. This creates an exception to the provision that an individual must have earned income to contribute to an IRA.
Last edited by RickBoglehead on Fri Apr 12, 2019 10:27 pm, edited 1 time in total.
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Re: Roth IRA Tax Income Question

Post by LadyGeek » Fri Apr 12, 2019 8:42 pm

This thread is now in the Personal Finance (Not Investing) forum (taxes).
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Dontridetheindexdown
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Re: Roth IRA Tax Income Question

Post by Dontridetheindexdown » Fri Apr 12, 2019 8:47 pm

The funds must be deposited in your Roth account by April 15.

If you initiate the transactions this weekend, they should appear in your Roth on Monday, April 15.

It is important that the 2018 Roth contributions appear in your Roth account by close of business April 15, 2019.

It may be several days later before your source account is debited.

Going forward, you can fund your 2019 Roth anytime between now and April 15, 2020, and repeat each year.

You can each fund your Roth account as early as January 1 each year (before you earn the money) and benefit by having an extra 15+ months in the market.

Over a working career, that can really add up!

Again, you are on an excellent trajectory.

If you and your wife continue this disciplined habit, you will be successful.

Carl53
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Re: Roth IRA Tax Income Question

Post by Carl53 » Sat Apr 13, 2019 4:38 am

OP, be sure to fill out Form 8880, Retirement Savers Credit as part of your tax return. Sounds like a $400 tax credit awaiting you. If you can't meet the filing deadline you can file for an extension.

Topic Author
miketherunner10
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Re: Roth IRA Tax Income Question

Post by miketherunner10 » Sat Apr 13, 2019 11:00 am

Carl53 wrote:
Sat Apr 13, 2019 4:38 am
OP, be sure to fill out Form 8880, Retirement Savers Credit as part of your tax return. Sounds like a $400 tax credit awaiting you. If you can't meet the filing deadline you can file for an extension.
Thank you I will have to look into that. I've already filed our taxes this past week. I know I should have opened up a Roth IRA earlier but didn't for a variety of reasons. My problem now is that 2018 contributions are due on Monday and Vanguard needs verification of our identity. We already sent in the money to them on Friday but it may be too late. I'll try to call Vanguard on Monday and see if anything can be done.

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