The complex rules for an individual retirement arrangement (IRA) are further complicated for taxpayers who are married. For example, contributions to a traditional IRA are only tax-deductible when income falls below thresholds that depend upon whether either spouse has a retirement plan at work. However, married couples enjoy tax benefits when a surviving spouse inherits an IRA.
Contributing to an IRA requires income from working. However, married people may “borrow” income earned by their spouses to make IRA contributions. The maximum IRA contribution a non-working married individual can make is the spouse’s earned income less any IRA contributions of that spouse – up to the annual limit of $5,000 (or $6,000 for someone who is age 50 or older.
IRA contributions are tax-deductible if neither spouse is covered by a retirement plan at work. The tax deduction phases out for anyone who’s covered by an employer plan or has a spouse who’s covered by one. As of publication, the IRA deduction is reduced for someone covered by an employer plan and filing a joint tax return with adjusted gross income (AGI) exceeding $90,000. The IRA deduction is eliminated for that person when AGI exceeds $110,000. An individual without an employer plan whose spouse is covered by one has a reduced IRA deduction when joint AGI exceeds $169,000. That individual’s IRA deduction is eliminated when AGI exceeds $179,000. No IRA deduction is permitted for someone with $10,000 of AGI who is married filing a separate tax return.
Normally, IRA beneficiaries cannot treat inherited IRAs as their own accounts. A beneficiary cannot make contributions to an inherited IRA like an account owner. When an IRA is inherited, distributions begin under the tax rules for beneficiaries. However, a surviving spouse has an option to not accept treatment like other beneficiaries. Instead, surviving spouses may assume treatment as account owners or roll over inherited IRAs to their own IRAs.
A Roth IRA is different than a traditional IRA because there’s no tax deduction for contributions. However, distributions from a Roth IRA are tax-free after reaching age 59-1/2 or satisfying another requirement. Individuals can only contribute to Roth IRAs when they don’t exceed a limit for modified AGI – which is the same as AGI for most people. The income limit on a tax return for someone married filing jointly is $177,000 as of publication. For those who are married filing separately, the limit is $10,000 if they lived with their spouses at any time during the year and $120,000 if they were living separately all year.
- Jupiterimages/Brand X Pictures/Getty Images