The rules for Individual Retirement Accounts for married couples filing joint income tax returns depends on what type of IRA is involved. Choosing between a traditional or Roth IRA depends on the couple's income, other retirement plan contributions, estate planning and their likely tax bracket in retirement. Consult your tax adviser or accountant for the best choice in your situation.
The main difference between traditional and Roth IRAs is in how they are taxed. Owners of traditional IRAs contribute with pre-tax dollars and pay tax on distributions as ordinary income. Contributions to Roth IRAs are after-tax, and qualified distributions are tax free. Contributors to either a traditional or Roth IRA may begin taking penalty-free withdrawals at the age of 59 1/2 but will be subject to a 10 percent penalty plus taxes on early withdrawals. Traditional IRA contributors must make mandatory withdrawals by age 70 1/2. Contributors to Roth IRAs are not subject to a mandatory withdrawal age. Because of this, Roths can serve as a valuable estate-planning tool.
There is no income limitation for maximum contributions to traditional IRAs. However, there are limits, based on Adjusted Gross Income, on what contributors can deduct if either spouse is covered by an employer retirement plan. In the case where one spouse is covered, the covered spouse can deduct the full contribution if their combined AGI is less than $90,000. If the AGI is over $90,000 but under $110,000, a partial deduction is allowable. No deductions are permitted for individuals enrolled in employer retirement plans if the couple's AGI is over $110,000. If one spouse is covered by an employer plan, the non-covered spouse may deduct the entire IRA contribution if their combined AGI is under $169,000. If the AGI is between $169,000 - $179,000, a partial deduction is permitted. No deduction for the spouse without an employer-sponsored plan is allowed if the AGI exceeds $179,000.
Because Roth IRA contributions are not deductible, the IRS places limits on how much a couple can contribute. Roth limits apply whether or not you are covered by a plan at work. For married couples contributing to Roth IRAs, the adjusted gross income limit for full contributions is $169,000. If the AGI is between $169,000 - $179,000, partial contributions may be made. Married couples with AGIs above $179,000 cannot contribute to Roth IRAs.
Maximum Contribution Limits
For both Roth and traditional IRAs, the maximum annual contribution is the same. For 2011, it is $5,000 for individuals under age 50, as long as the person makes that much in earned income, and $6,000 for anyone 50 and over. A married couple over age 50 who contributed the maximum to their IRAs could save $12,000 annually. This is a combined limit. So if a couple has both a traditional and a Roth IRA, the combined contributions to both IRAs cannot exceed the $5000/$6000 limit.