Can I contribute to a spousal IRA?

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jinx
Posts: 18
Joined: Fri Sep 04, 2015 10:43 am

Can I contribute to a spousal IRA?

Post by jinx » Thu Oct 12, 2017 10:28 am

Here is my situation...

I earn too much to do a direct Roth IRA, but have been performing he backdoor Roth for myself for the past several years. In 2016 my wife did not work and I was planning on contributing $5500 to her IRA. (I can not do a backdoor for her because she has a large IRA). When I asked my accountant about this, I was told that I could not make a contribution to her IRA because I make too much. I accepted this and moved on...

Now, I see in other posts that couples in similar situations are doing backdoor Roths each year. They are making about the same income as me and have a non-working spouse. I am confused. Should I be able to contribute to my wife's IRA? What if she is working this year, but will only make ~$3,000?

Thanks

Chip
Posts: 1646
Joined: Wed Feb 21, 2007 4:57 am

Re: Can I contribute to a spousal IRA?

Post by Chip » Thu Oct 12, 2017 10:40 am

You can always contribute to her spousal IRA since you have the necessary amount of compensation. But it may not be deductible. tIRA deductibility limits here. These only apply if she is NOT covered by a retirement plan at work.

ThriftyPhD
Posts: 175
Joined: Mon Jul 31, 2017 10:43 am

Re: Can I contribute to a spousal IRA?

Post by ThriftyPhD » Thu Oct 12, 2017 10:44 am

See Non-deductible Traditional IRA.

A Backdoor Roth is making a non-deductible contribution to a traditional IRA, and then convert that IRA to a Roth IRA.

Income phaseouts (MAGI) for deductibility in a traditional IRA for married filing jointly (MFJ) are $99,000-$119,000 if she is covered by an employer's plan, $186,000 - $196,000 if not. For a direct Roth contribution, the limits are $186,000 - $196,000.

So, you can contribute to your wife's IRA, but it won't be deductible if your MAGI is > $196,000. Since you're performing a backdoor Roth for yourself, I assume your MAGI is greater than $196,000.

What your accountant may have meant was that the contribution would not be deductible.

As to the amount, I believe if you're MFJ you could contribute the full $5,500 ($6,500 if > 50 years old) even if she is not working, since it would be based on the combined income.
Last edited by ThriftyPhD on Thu Oct 12, 2017 10:46 am, edited 1 time in total.

DSInvestor
Posts: 10592
Joined: Sat Oct 04, 2008 11:42 am

Re: Can I contribute to a spousal IRA?

Post by DSInvestor » Thu Oct 12, 2017 10:45 am

If you file your tax returns as married filing jointly, your wife is eligible to make spousal IRA contributions to either Traditional IRA and/or Roth IRA. This is true even if she has no compensation.

Roth IRA:
Her eligibility for Roth IRA contributions is subject to MAGI limits based on your joint AGI/MAGI. If you are not eligible for Roth IRA based on MAGI, your wife wold also be ineligible.
IRS Page on Roth IRA's MAGI limits: https://www.irs.gov/retirement-plans/roth-iras

Traditional IRA:
While Traditional IRA contributions are not limited by high income, the deduction for TIRA contributions is subject to MAGI limits. Further complicating matters is the fact that there is one low MAGI limit for spouses who are covered by employer plan and a higher MAGI limit for the spouse who is not covered by an employer plan. A covered spouse can fully deduct TIRA if MAGI < 99K, while a non-covered spouse can fully deduct TIRA if MAGI < 186K.
IRS Page on Traditional IRA deduction limits: https://www.irs.gov/retirement-plans/ir ... ion-limits

If your wife has no IRA basis in her IRAs and she is eligible for fully deductible TIRA contributions, it may make sense for her to contribute to TIRA. She can either keep the money in the TIRA thus keeping the tax deduction or she can convert to Roth IRA which would be taxable and give back the deduction.

If she is not eligible for the TIRA deduction, and does not have a way to isolate her IRA basis to allow tax free Roth IRA conversion, it may be better not to contribute to TIRA. IRA basis can be isolated by rolling over all IRA assets in excess of IRA basis into an employer plan like 401k, Solo 401k, TSP etc.

jinx
Posts: 18
Joined: Fri Sep 04, 2015 10:43 am

Re: Can I contribute to a spousal IRA?

Post by jinx » Thu Oct 12, 2017 10:53 am

Thanks you that makes sense. I guess the accountant meant it was not deductible.

rkhusky
Posts: 4509
Joined: Thu Aug 18, 2011 8:09 pm

Re: Can I contribute to a spousal IRA?

Post by rkhusky » Thu Oct 12, 2017 12:34 pm

ThriftyPhD wrote:
Thu Oct 12, 2017 10:44 am
See Non-deductible Traditional IRA.
Note the second table on this wiki page that shows that a tax efficient taxable account can be better than a non-deductible Traditional IRA. You would need to do similar analysis to determine if that is also true for your situation using your own rates.

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