Contributions unemployed and comingled contributions

Submitted by Mike Hunt on Wed, 2014-01-29 12:51

Helping a friend with their taxes – If one person is employed and other is not…AND…employed spouse has a qualifying retirement plan through work (assume a combined MAGI +115K)
1. Can they BOTH contribute to IRA’s?
2. Employed spouse is limited to a non-deductible contribution to a TIRA, correct?
3. Can unemployed spouse contribute to a Roth?

Also….

Every year I get all the warnings about co-mingling. We did this accidentally at first maybe 7 years ago when we rolled over from old 401Ks and then made subsequent year contributions. Whats done is done, but we DO keep track in a spreadsheet of what we have put in every year since.

HOWEVER, is there any good reason(s) to STOP doing this and establish new IRA’s? If we are making things worse I’m happy to do this, but if not, I’d rather not establish MORE accounts. But in the end, I want to do what is best long-term and make things easier for us when we eventually tap into them and have to pay taxes on withdrawals.



Submitted by Alan - IRA critic on Wed, 2014-01-29 15:52

  1. Yes
  2. Yes, or Roth if MAGI less than 178-188 phaseout range
  3. Unemployed spouse can deduct TIRA contribution if MAGI less than 178-188k phaseout range. If more than that, cannot make Roth contribution and non deductible TIRA contribution is only option
  4. No reason to establish new IRA accounts now, unless there is another large rollover coming from an employer plan. All your TIRA accounts are considered combined for tax reasons. If your state does not provide complete creditor protection for IRAs, and uses the federal bankruptcy Act, the rollover would have unlimited dollar protection. After receiving contributions, that account would have a limit of around 1.3mm of creditor protection with annual inflation adjustments. If this is a factor in your state, just continue the spreadsheet as it might be helpful. If your state totally protects IRAs, or if your IRAs will never exceed 1.3m plus inflation, you can drop the spreadsheet as well unless it has other purposes.


Submitted by Mike Hunt on Wed, 2014-01-29 15:57

Their AGI is ~146K. So to confirm:

  1. BOTH can contribute to a Roth….OR
  2. BOTH can contribute to a TIRA, but only the unemployed spouse can deduct it….OR
  3. Employed spouse does a non-deductible TIRA and unemployed spouse goes Roth
  4. Does one have any benefits over the other?

 



Submitted by Alan - IRA critic on Wed, 2014-01-29 19:18

The only situation that is always true is that if a spouse cannot deduct a TIRA contribution, then a Roth is always a better choice than a non deductible contribution if income is not too high to make the Roth contribution. If eligible for either a Roth or a deductible contribution, the best choice depends on whether the deduction will generate more tax savings now than a Roth distribution would in retirement. They could always hedge their bets if MAGI is under 178k, with unemployed spouse making a deduction contribution and employed spouse making a Roth contribution.



Add new comment

Log in or register to post comments