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Use Nonworking Spouse IRA Contributions To Save Faster For Retirement






     A nonworking spouse can make contributions to either a deductible (traditional) IRA or a Roth IRA based on her working spouse's (husband's) income. This can help soon-to-be retirees save faster.

The maximum contribution that each spouse can contribute in 2014 is $5,500 plus an additional $1,000 'catch-up' contribution if you're 50 or older. That's an extra $6,500 savings contribution by the nonworking spouse per year for those last 5 or so years before a 'working spouse' retires.

To take advantage of nonworking spouse IRA contributions, two conditions must be met:

* both spouses must file jointly

* the income of the working spouse must cover the total contributions of both spouses

-Make a Roth contribution or a Traditional IRA contribution -Whichever is best for you:

Remember that a Roth contribution is non-deductible. But its benefit is that whatever you do contribute grows tax free and you can withdraw it tax free as well. Traditional IRA contributions are tax deductible. But they grow tax-deferred until you withdraw them. And when you withdraw them, they come out as taxable income. So if you are expecting a lot of taxable income in your retirement years, you may favor using a Roth. But below are the limits of income of the working spouse that determines when the nonworking spouse can make a contribution of either type.

-Roth IRA (nondeductible) contributions:

Both spouses can contribute the maximum to their own Roth IRAs as long as the working spouse's income is below $181,000 (or $181K for short). Between $181K-191K contributions of both spouses are phased to $0. Roth IRA contributions are not deductible but are made with after tax contributions. And there's not limitations based on the working spouse being covered by a retirement plan at work.

-Deductible (traditional) IRA contributions:

Both spouses can contribute to their own deductible IRAs. But each spouse's contribution has different limits associated with the working spouse's income depending on whether or not the working spouse is covered by a retirement plan at work.

When the working spouse has no retirement plan coverage at work, both the working and nonworking spouse can make the maximum contribution no matter how high the working spouse's income is.

If the working spouse has a retirement plan at work, his contribution will be limited and phased out starting when his income reaches $96K; phase out is completed at $116K. However, the nonworking spouse's contribution won't begin to be phased out until the working spouse's income reaches $181K.

As an example, if Mr. Jones is covered by a retirement plan at work and makes $120K, he'll not be able to make a deductible contribution to an IRA. His nonworking wife, however, can make the maximum contribution to her deductible IRA or her Roth IRA. Mr. Jones, as an alternative, could contribute the maximum to his Roth IRA.

-Maximum age to make a traditional IRA contribution:

You can't contribute to an IRA if you have reached age 701/2. But if you attain that age or more and are still working, and your spouse is younger than 701/2, she can make a nonworking spousal contribution.






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Posted on 2014-03-12, By: *

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