The Internal Revenue Service recognizes two types of individual retirement accounts, Roth IRAs and traditional IRAs. The IRS generally only allows people who report earned income on their federal tax returns to contribute to either type of IRA. The IRS allows a person who contributes to a traditional IRA to deduct his contributions on his tax return. If a married couple satisfies certain criteria, the IRS may permit a working spouse to make contributions to his non-working spouse’s traditional IRA.
A working spouse may contribute to his unemployed wife’s traditional spousal IRA if the couple files a joint federal tax return and live together for at least a portion of the year during which the working spouse makes a deposit in his wife’s account. An account owner must be under age 70-1/2 to receive funds in her traditional spousal IRA.
As of publication, the IRS allows a working spouse to contribute up to $5,000 in his non-working wife’s traditional IRA if she is under age 50. If a worker’s wife is 50 or older, the worker may contribute up to $6,000 to his wife’s IRA each year. The total of the contributions a working spouse makes to his IRA and his wife’s spousal IRA cannot exceed 100 percent of his earned income.
Modified Adjusted Gross Income
The IRS reduces or eliminates a couple’s ability to deduct a contribution to a traditional spousal IRA if the modified adjusted gross income (MAGI) reported on their joint tax return is above certain thresholds. As of publication, the IRS allows a couple reporting a MAGI equal to or less than $169,000 on their tax return to deduct the full amount contributed to a traditional spousal IRA. The IRS forbids a couple from deducting a contribution to a spousal IRA if they record a MAGI equal to or greater than $179,000. If a couple’s joint tax return includes a MAGI between $169,000 and $179,000, the IRS allows them to record a partial deduction for the amount contributed to traditional spousal IRA.
Calculating Modified Adjusted Gross Income
A taxpayer’s MAGI equals the adjusted gross income reported on his federal income tax return plus certain permissible deductions and exclusions. To determine his MAGI, a taxpayer adds his adjusted gross income to exclusions he took for U.S. Savings Bond interest, employer-paid adoption expenses and income earned abroad. A taxpayer also adds deductions taken for traditional IRA contributions, foreign housing and interest on student loans.
The person named in the paperwork used to establish a traditional IRA is the owner of the funds in the account. Even if a worker contributes all of the funds held in his wife’s spousal IRA, the deposits and the interest earned on them remain her exclusive property.
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