Retirement & Eldercare

Don't Overlook the Spousal IRA

Don't Overlook the Spousal IRA

People are always looking for ways to minimize their tax liability, yet married couples in which one spouse is either non-working or low-earning frequently overlook one of the simplest that is available, the spousal IRA. 

IRA contributions are available to those taxpayers who have eligible compensation, which is defined as salaries, tips, bonuses, commissions, net income from self-employment, professional fees, and even alimony.  In most cases, people who do not earn income are not able to take advantage of the tax benefit offered by making an IRA contribution, however there is an exception in the case of non-working or low earning spouses. These individuals are able to make a contribution to their own IRA as long as their spouse meets the compensation requirements, and they are permitted to contribute as much as $5,500, the same maximum amount that applies to their spouse for the years 2013 through 2015.  For those who are fifty or older, it is possible to contribute $6,500 per year because the law allows “catch-up” contributions of an additional $1,000 maximum to be made.  The couple's combined contribution to the IRA can go up to their combined maximum levels as long as the compensation received by the spouse also meets or exceeds that amount.  

What this means is that even if a low earning spouse makes less than $5,500 per year, as long as that individual's income combined with their spouse's income totals $5,500, he or she is able to contribute the maximum amount into their own IRA.  This is true for contributions to either a Traditional IRA or a Roth IRA or a combination of the two, as long as the contributions stay within the annual limit. 

When making contributions to an IRA it is important that there is a good understanding of how deductibility works and how it relates to the individual taxpayer's income. Contributions to traditional IRAS do not have an income limit, but if the spouse who is working participates in a qualified retirement plan, then the non-working or low earning spouse can only make a tax-deductible to their IRA if the couple's adjusted gross income (AGI) doesn't go over $183,000 in 2015, with a phase out between $183,000 and $193,000. This represents in increase from 2014, when the AGI could not exceed $181,000, with the limit phased out between $181,000 and $191,000. For Roth IRAs, contributions, the limits and phase outs are the same, and Roth IRA contributions are not tax-deductible under any circumstances. 

If you need assistance in understanding how the spousal IRA rules may be of benefit to you, search for the best local tax professionals on www.taxbuzz.com

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Lee Reams, BSME, EA

Lee Reams, BSME, EA

Editor-in-Chief

Besides his role at CountingWorks as an educator and speaker to thousands of accountants nationwide, Lee manages a technical research service for a large group of tax accountants which sharpens his technical skills. Lee served on the Board of Blackline Systems, is a former Board of Director for the California Tax Education Council, is a Past President of the San Fernando Valley Chapter of Enrolled Agents, Member and Past Director for the California Society of Enrolled Agents.

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