Spousal Contributions
If my client’s husband takes money out of his traditional IRA and wants to use that money to contribute to her IRA- is that still considered a spousal contribution?
If my client’s husband takes money out of his traditional IRA and wants to use that money to contribute to her IRA- is that still considered a spousal contribution?
Permalink Submitted by Alan - IRA critic on Wed, 2017-03-22 22:46
A spousal contribution can only be made to the IRA of the lower earning spouse. One of these two must have earned income to make an IRA contribution from. His distribution cannot be rolled over to her IRA and it would be taxable. But his distribution check could be cashed and a new cash contribution made to her IRA. If she has no earned income then the contribution would be a spousal contribution out of his earned income. Also, if his distribution is taxable and her contribution is deductible, then the tax and deduction balance out. It is not clear what they are trying to accomplish here, other than perhaps equalizing their IRA size.
Permalink Submitted by David Mertz on Thu, 2017-03-23 00:31
Taking a distribution just to use the money to fund a spousal IRA contribution would also have the downside of reducing the amount of retirement contributions made by either spouse that are considered for the Retirement Savings Contributions Credit (in the case where one would qualify for the credit) for several years.