Deductible IRA

Husband makes about $1M/yr.
Wife works.
She does not contribute to a 401(k) and there is no other pension at work.

Can the wife make a deductible IRA contribution?



No. Since their joint modified AGI will obviously be over 166,000 (169,000 for 2008), she cannot take a deduction despite not being covered by a retirement plan. Those same limits also prevent her from making a Roth contribution.

This couple could both make non deductible TIRA contributions and file Form 8606. After 2009, they could convert part or all of their TIRA to a Roth IRA as the income limit for Roth conversions is eliminated. A Roth may be very valuable in retirement for high income earners since there are no RMDs and distributions are tax free.

Otherwise, she might start to participate in the 401k for 2008 if eligible to make some of her salary pre tax.



Thanks Alan.

One more thing.

Is the $100k MAGI limit the combined household income [husband’s income plus wife’s income] in the case of a married couple?



The 100,000 limit for Roth conversions applies to joint filers or single filers. ie the total income reported on the return.

If they lived together at any time during the year and file married/separate, neither one can convert at all.

All of these restrictions are eliminated starting in 2010. It’s high earners like this that may not have an IRA at all since their incomes are too high for deductible TIRA OR Roth regular contributions, and non deductible TIRA contributions generally have not been popular, particularly following the 2001 tax legislation. Making the non deductible contributions now will give them some TIRA assets to convert come 2010.



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