Q on spousal IRA contribution with low W-2 income

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Only my spouse (teacher) had earned income in 2016.

Since the maximum was diverted to their 403b plan, Box 1 on their W-2 is around $8,000.

Can we both contribute the max ($5,500, under 50) to each of our existing traditional IRA accounts for 2016?

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Yes both can contribute max, but look into contributing to a roth ira since you're at a low tax bracket.

phatrabbitzz said:   Yes both can contribute max, but look into contributing to a roth ira since you're at a low tax bracket.
† I believe that is not accurate.† Your combined contribution can not exceed the taxable amount, from the IRS web site

Spousal IRAs


If you file a joint return, you may be able to contribute to an IRA even if you did not have taxable compensation as long as your spouse did. The amount of your combined contributions canít be more than the taxable compensation reported on your joint return. See the formula†in IRS Publication 590-A.†


So, based on your W2, the max you can contribute is $8000, but you can put it into any combination you want ($4000 each, $5000 in one, $3000 in the other, etc).

ETA: Formatting

AverageGuy09 said:   
phatrabbitzz said:   Yes both can contribute max, but look into contributing to a roth ira since you're at a low tax bracket.
† I believe that is not accurate.† Your combined contribution can not exceed the taxable amount, from the IRS web site

Spousal IRAs


If you file a joint return, you may be able to contribute to an IRA even if you did not have taxable compensation as long as your spouse did. The amount of your combined contributions canít be more than the taxable compensation reported on your joint return. See the formula†in IRS Publication 590-A.†

ETA: Formatting

††
My thoughts as well. Sounds like OP can contribute $5500 to one account, and the remaining of the $8000 ($2500) to the second account.

Based on OP spouse earned 26k(=18+8) and chose to put $18K in 403b. This makes her total compensation for ira calculation $26K, not $8K, so they can each contribute the full 5.5k amounts into ira.

Del

ncbill said:   Only my spouse (teacher) had earned income in 2016.

Since the maximum was diverted to their 403b plan, Box 1 on their W-2 is around $8,000.

Can we both contribute the max ($5,500, under 50) to each of our existing traditional IRA accounts for 2016?

† Your taxable compensation is basically Box 1 on the W2 (net of some things unlikely to apply like nonqualified plans). †This is the maximum you can contribute between you and your spouse to IRAs, split up however you want as long as each is under the individual $5500 limit. †

A better question is why you are contributing to a pretax retirement plan when you have nearly no income. †Married with even $26k in income (assuming $18k in pretax retirement savings through work not reflected in a Box 1) you very like pay nothing in taxes especially after some of the retirement savings credits. †If you contributed to a Roth 401k instead, Box 1 would not be smaller and then you both could contribute to either kind of IRA based on the "same" income that allowed you to contribute to a Roth 401k. †

https://www.bogleheads.org/forum/viewtopic.php?t=189558

in short, I think you should be contributing to Roth accounts, both for 401ks and IRAs.

phatrabbitzz said:   Based on OP spouse earned 26k(=18+8) and chose to put $18K in 403b. This makes her total compensation for ira calculation $26K, not $8K, so they can each contribute the full 5.5k amounts into ira.
††
O RLY?†

That's funny, because on their 1040 tax return for this year they will be telling the IRS that they only made $8k.

Xerty is right

Are you contributing to an IRA because you want to deduct the contributions? If so, keep in mind the limits if you are covered by a retirement plan at work.

https://www.irs.gov/retirement-plans/plan-participant-employee/2...

meade18 said:   Xerty is right

Are you contributing to an IRA because you want to deduct the contributions? If so, keep in mind the limits if you are covered by a retirement plan at work.

https://www.irs.gov/retirement-plans/plan-participant-employee/2016-ira-contribution-and-deduction-limits-effect-of-modified-agi-on-deductible-contributions-if-you-are-covered-by-a-retirement-plan-at-work

† yeah, they can likely deduct the traditional IRA contribution with that little income despite having a retirement plan, but the deduction won't matter since they'll own nothing anyway unless they have lots of other income. †The standard deduction will wipe out $8k in wages as married, no need for traditional IRA deductions too. †Put it in a Roth instead and then you don't have the tax liability later when you take it out for retirement - easy choice.

xerty said:   
meade18 said:   Xerty is right

Are you contributing to an IRA because you want to deduct the contributions? If so, keep in mind the limits if you are covered by a retirement plan at work.

https://www.irs.gov/retirement-plans/plan-participant-employee/2016-ira-contribution-and-deduction-limits-effect-of-modified-agi-on-deductible-contributions-if-you-are-covered-by-a-retirement-plan-at-work

† yeah, they can likely deduct the traditional IRA contribution with that little income despite having a retirement plan, but the deduction won't matter since they'll own nothing anyway unless they have lots of other income. †The standard deduction will wipe out $8k in wages as married, no need for traditional IRA deductions too. †Put it in a Roth instead and then you don't have the tax liability later when you take it out for retirement - easy choice.

I am not sure how OP plans to live if all the income is contributed in retirement accounts. I am assuming they have "other" income or just live on savings.
Unless the other income is substantial, OP will also qualify for saver's credit. Is the saver's credit refundable?

fwuser12 said:   I am not sure how OP plans to live if all the income is contributed in retirement accounts. I am assuming they have "other" income or just live on savings.
Unless the other income is substantial, OP will also qualify for saver's credit. Is the saver's credit refundable?

They could have assets that are in cash, which doesn't pay much these days. The Saver's Credit is ideal for them.

https://www.irs.gov/retirement-plans/plan-participant-employee/r...

However, it is not refundable (refundable credits show up in the "Payments" section of the 1040 like EIC).

xerty said:   
meade18 said:   Xerty is right

Are you contributing to an IRA because you want to deduct the contributions? If so, keep in mind the limits if you are covered by a retirement plan at work.

https://www.irs.gov/retirement-plans/plan-participant-employee/2016-ira-contribution-and-deduction-limits-effect-of-modified-agi-on-deductible-contributions-if-you-are-covered-by-a-retirement-plan-at-work

† yeah, they can likely deduct the traditional IRA contribution with that little income despite having a retirement plan, but the deduction won't matter since they'll own nothing anyway unless they have lots of other income. †The standard deduction will wipe out $8k in wages as married, no need for traditional IRA deductions too. †Put it in a Roth instead and then you don't have the tax liability later when you take it out for retirement - easy choice.

††

Exactly. I also posit that THEY don't have that little income, only SHE does, which is why they need to be aware of the income limitations for people covered by retirement plans at work. If they have little enough income that their contributions would be deductible, but are able to contribute to retirement as much as they already are, they likely have other means of support besides wages. In that case they should (like you said) forgo the deduction and just contribute to a Roth.

I did the opposite the past few years (contributed to wife's trad IRA rather than roth), but that was because we had no income limitation cause wife didn't have a retirement plan as a contract employee and we made over 100k, so the deduction was useful.†

Simply put, the OP did not give enough information.



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