Whether you’re a stay-at-home mom or dad or just taking some time off work, you should not take a break from saving for retirement. And thanks to more generous federal income tax guidelines, it’s now easier than ever to keep that nest egg growing. Here’s what married joint-filing couples need to know, whether one or both spouses work.
The nonworking spouse
A nonworking spouse can make a deductible IRA contribution of up to $6,000 for 2019 ($7,000 if age 50 or older as of Dec. 31, 2019) as long as the couple files a joint return, and the working spouse has earned income that equals are exceeds the sum of the nonworking spouse’s contribution plus the working spouse’s contribution. However, if the working spouse is covered by a qualified retirement plan (via a job or self-employment), the deductibility of the nonworking spouse’s contribution is phased out in 2019 between joint adjusted gross income (AGI) of $193,000 and $203,000, The working spouse’s ability to make a deductible contribution for 2019 is phased out between joint AGI of $103,000 and $123,000.
For example, say a married couple has 2019 AGI of $190,000. All the income is from the wife’s job, and she is covered by a qualified retirement plan at work. The nonworking husband can make a $6,000 deductible contribution to an IRA set up in his name (because joint AGI is below the $193,000 threshold for the phase-out rule). If he will be age 50 or older as of Dec. 31, 2019, he can contribute and deduct $7,000. The working wife cannot make a deductible contribution (because the couple’s joint AGI exceeds the $123,000 top end of the phase-out range). However, the wife can make a nondeductible contribution to a traditional IRA.
The following point is often misunderstood. When neither spouse participates in a qualified retirement plan (via a job or self-employment), both the nonworking spouse and the working mate can each make deductible contributions to traditional IRAs, regardless of AGI. For example, say the couple’s joint AGI is $400,000 from one spouse’s self-employment activity. If that spouse has no retirement plan, each spouse can make a $6,000 deductible IRA contribution for 2019 ($7,000 each if both are age 50 or older as of Dec. 31, 2019).
Both spouses work
Similarly, when both spouses work but neither participates in a qualified retirement plan, each spouse can make deductible IRA contributions of up to $6,000 for 2019, regardless of the couple’s AGI level. The only limitation is that they must have enough combined earned income to at least match the combined amount of their contributions. Each spouse can contribute and deduct up to $7,000 if he or she will be 50 or older as of Dec. 31, 2019.
Now what if both spouses work, and both participate in qualified retirement plans in 2019? In this scenario, the restrictive AGI-based phase-out range of $103,000 to $123,000 applies to both spouses. For example, if the couple’s joint AGI exceeds $123,000, neither spouse can make a deductible IRA contribution for the year. But if their joint AGI is $103,000 or below, they can both make up to $6,000 of deductible contributions ($7,000 for a spouse who is age 50 or older as of 12/31/19).
Finally, what if both spouses work but only one is a participant in a qualified retirement plan? In this case, the participant spouse’s ability to make deductible contributions for 2019 is limited by the $103,000 to $123,000 phase-out range. The nonparticipant spouse is covered by the more liberal $193,000-to-$203,000 phase-out range explained at the beginning of this article. For example, say the couple’s joint AGI is $190,000, and the husband is a qualified-plan participant while the wife is not. He cannot make a deductible IRA contribution because the couple’s joint AGI exceeds the $123,000 top end of the phase-out range that applies to him. However, he can make a nondeductible contribution to a traditional IRA. The wife can contribute and deduct up to $6,000 ($7,000 if she will be 50 or older as of Dec. 31, 2019) because the couple’s joint AGI is below the $193,000 starting point for the deductible contribution phase-out range that applies to her.
Is this all quite confusing? Definitely. But you now have the full story on deductible IRA contributions.
Roth IRA contributions
With Roth IRAs, deductibility is not an issue. Contributions are made with after-tax dollars and are subject to the same contribution limits as for traditional IRAs. The payoff is that all Roth account earnings — along with the contributions — can be withdrawn tax-free after age 59 1/2, provided the account owner has had at least one Roth IRA open for over five years. There are AGI-based contribution limits. Specifically, eligibility to contribute to a Roth IRA for 2019 is phased out between AGI of $193,000 and $203,000 for married joint-filing couples, and between $122,000 and $137,000 for singles. If you think those ranges are too low, consider the phase-out rule for married individuals who file separate returns. For them, Roth IRA contribution eligibility phases out between $0 and $10,000 of AGI. Obviously, few people in this category will qualify.
This story was updated on March 15, 2019.
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