Greetings!
Thanks for the "heads-up" about the spousal IRA. I called my tax guy and he assures me that if we file jointly, it would not be necessary to open a separate IRA for her and put the money into an IRA in HER name---because she is the one earning income, as opposed to my pension. . One tax form covers the two of us, we are taxed jointly. That's the logic. We report our income together. We're both in the same picture. I trust him, but does that not sound kosher to you?
Comments
"Contributions can be made to your traditional IRA for
each year that you receive compensation and have not
reached age 70 and a half. For any year in which you do not work,
contributions cannot be made to your IRA unless you re-
ceive alimony, nontaxable combat pay, military differential
pay, or file a joint return with a spouse who has compen-
sation. ........That final phrase puts me at ease about LAST year's return. And it clearly will not be necessary to open an IRA for wifey, as long as she's working.....Why does this crap have to be so complicated? I trust what you guys are advising for me, but then I read THIS thing... "What's a mother to do?" JEEZ.
So you have an IRA and the wife does not? Maybe she does not qualify for an IRA does she at least have a ROTH?
Art
So, I suppose based on that excerpt further up the page from the IRS Publication, the $6,000 we put into my Trad. IRA for 2012 is permitted. My tax guy didn't think anything of it. He saw the documents, all the 1099s, etc.
I worked for taxable wages just ONE DAY in 2012. Other than that, I have a very small pension. Now, it is my wife who makes the money. (I retired officially and started collecting my pension as of 1/1/2012.) She is working full time hours, and is moonlighting at another job, but her status at the job is not yet full-time, even though it's been promised to her. They love her work. She has the paperwork to be included in their DEFINED CONTRIBUTION ANNUITY retirement plan, but has not yet filed those papers. I believe the reason is that she just hasn't been convinced that waiting so long to get her money back (no earlier than age 59 and a half) would be WORTH the WAIT. I have tried and tried to tell her. But anyhow, she is right now still part-time officially. Working 30+ hours per week.
I spoke to her and of course she's willing to start an IRA. But she's still not 50 years old yet, and so it looks like we would miss out on the $1,000 difference between the $5,000 the government would allow HER and the $6,000 the government HAD (?) allowed ME, in prior years. In prior years, we did well if we could manage to throw $1,000 into the IRA each year.
Our income is so low that I don't bet we'll ever leave the 10% bracket. And that's where we've always been. If we open a ROTH for her now, the tax on it is due right away, each year, rather than tax-deferred. What's the advantage to choosing ROTH for her? Why pay uncle Sam before we are required to do it, I'm wondering? We will not be dropping into a lower tax bracket in the future.
Thanks for stopping and listening. (But honestly, based on the IRS excerpt above, why would it be necessary to open an IRA for her? The "unless" phrase DOES apply to me, since I'm married, filing jointly, and my spouse works for taxable wages.)
I need to make sure to get this right. I don't need to call my tax guy AGAIN about the same thing. It would be just as easy to open an IRA for my wife and put the money in there. But we could sure use the tax deduction, going with a Traditional IRA.
Investor has offered a clear, short and sweet reply already, above. Please, any of you: please "chime in" here if you have any input. Thanks. The IRS regulations are a confusing, confounding pile of smelly, rotten feces. ..."Your tax dollars at work!"
It is best if you can put money in both accounts. Take full advantage of the opportunity. Since you are in low taxable brackets it makes much more sense to put the monies to Roth accounts for you and wife rather than traditional IRA.
Ideally I want prefer you guys put the max you are entitled. $5000 for her and $6000 for you. If you do not have enough I understand but you can do some part time job somewhere to earn a few thousand dollars to make it possible.
Btw, 2013 contribution limit increased to $5500 for standard contribution and plus $1000 additionsl for catchup if you are over 50. So, you have opportunity to contribute more this year.
http://www.smartmoney.com/retirement/planning/nine-frequently-asked-questions-about-iras-7950/
Please see publication 590 http://www.irs.gov/publications/p590/
and pose questions on Fairmark.com, where questions are answered by CPAs, enrolled agents, and others.
Investor says what I think but would not say. If a divorce were to happen you would split the IRA no matter whose name it is in. What we do is put an equal amount for my wife and I in our Roth's. While the Roth contributions have been taxed it is like a savings account as the money can be gotten without penalty(original contribution's only) in case of an emergency.
Another advantage of a Roth is no RMD's or Required Minimum Distributions. When you reach age 70-1/2 you will be required to remove some of your IRA and pay taxes regardless if you need the money or not. Depending on your age the money you put in this year may not stay in the IRA long. I would open a IRA for your wife and a ROTH for you. Control your money, don't let the U.S. Government do it for you.
Art
Since you're not currently maxing out an IRA, I think she'd be better off putting whatever money she would have put in the annuity program into a Roth instead...No taxes on the way out, no RMD and more importantly, better investment options and I'm sure MUCH lower fees.
I suppose for others, the decision to go with Roth or Trad. IRA is simpler and clearer. We'll be more comfortable once I'm drawing SS. But all along, we're helping family back in Asia. The Trad. IRA tax deduction smells attractive to us, in the 10% bracket. I actually don't mind the RMD. We might very well be living cheaply in the Philippines by the time I get to 70 and a half, if my health holds up. That particular aspect of things is already less than ideal. There's 19 years between us, too. When I'm out of the picture, she says she will want to be living in The Philippines. I don't blame her....