Comments on: Save for Retirement With a Spousal IRA

By: Courtney

Courtney — Mon, 08 Feb 2010 22:04:43 +0000

@ JP – see my comment at #5 (if you missed it) about another way married 2-income couples are penalized. It was related to the subject of the post (IRAs) but I think it helped start the marriage penalty discussion

By: BG

BG — Mon, 08 Feb 2010 21:17:25 +0000

@JP) Most of the marriage penalty was been fixed in 2003. But, still exists to some degree: the marriage penalty kicks in when the couple earn roughly the same amount of money (and at larger income levels). For example, if two single people both earn $100k (taxable) a year, then their combined tax is $38,204. If they were married and filed MFJ, then the tax is $39,028, an $824 increase ‘penalty’ for just being married. If the two earned $200k each, then the marriage-penalty is closer to $8,000…

By: JP

JP — Mon, 08 Feb 2010 20:46:08 +0000

@ #10 – I don’t get it. How does the IRS punish two couples working? When I do my taxes they are always less (the total tax) if we file MFJ than if we were two singles filing separately.

By: BG

BG — Mon, 08 Feb 2010 20:42:40 +0000

#8Dan & #9 Adam) you are right, it’s the tax code, not the good folks who work for the IRS just doing their job.

Dan: my wife works part-time, doesn’t make enough to have any taxes withheld from her paycheck (zero exemptions), yet her income is taxed at my highest bracket. So, you are correct that they only punish married couples who both work. That’s the ‘marriage-penalty’ that is still in effect. Congress did fix a part of the problem by raising the standard deduction for married couples to be 2x the single.

If we want people to get married, then lets not penalize working married couples on their taxes. In our case, we’d be better off being ’single’, and just living together…

By: Adam

Adam — Mon, 08 Feb 2010 19:47:24 +0000

Congress punishes married people, not the IRS. The IRS only interprets what congress writes.

By: Dan

Dan — Mon, 08 Feb 2010 19:43:00 +0000

BG,

The IRS only punishes married people who both work

My wife isn’t working while she finishes school. But as an MFJ, we (I?) have the benefit of 2x the standard deduction for a single and 2x the standard exemption for a single (don’t forget 2x the standard “making work pay” deduction/rebate/whatever for singles too). AND since the brackets are figured differently for MFJ vs single, my tax liability was about $4500 less than it would be had I not been married.

So yeah, the IRS punishes multi-income married folks, but rewards the single-income families.

By: JP

JP — Mon, 08 Feb 2010 19:41:39 +0000

Re: KC. Starting this year there are no income limits for converting an IRA to a Roth IRA. So if you cannot contribute directly to a Roth due to AGI you can contribute to a non-deductible IRA and then immediately convert it to a Roth IRA. If you have existing pre-tax IRA’s (traditional deductible) then the conversion is more complex and you’ll have to pay taxes based on how much you convert and how much of your total IRA balance is pre-tax.

By: BG

BG — Mon, 08 Feb 2010 18:16:06 +0000

nm on my question. I called the IRS and they told me that since I was covered by a retirement plan at my work then I am subject to the lower phase-out limits ($89k – $109k). Since my wife is not covered by a retirement plan at her work, then she is at the upper limits for whether her contributions are deductible (AGI of $166-$176). Even though we are married filing jointly, we are still considered two people with different limits for our IRAs..

#5 Courtney) I agree, the IRS punishes married people…

By: Courtney

Courtney — Mon, 08 Feb 2010 17:33:29 +0000

Does anyone know why the Roth IRA income eligibility limits for married filing jointly aren’t 2x as much as a single filer? A married couple can only have $166K in income for full contribution eligibility (an average of $83K each), but single people can have up to $105K and still be eligible for a full contribution. And a married couple would be totally phased out of contribution eligibility with only $10K of additional *combined* income, but a single person can earn $15K more before they are completely phased out of contribution eligibility.

By: BG

BG — Mon, 08 Feb 2010 17:22:15 +0000

About the deductability of traditional IRA contributions. If I have a retirement account through my employer, and my wife does not: it seems to say that the income phaseouts begin at $166k.

Is it only the spouse’s traditional IRA contributions that are deductible? or can I deduct mine as well?

Thanks.

By: daddy paul

daddy paul — Mon, 08 Feb 2010 16:10:37 +0000

Just a note to watch out for as far as traditional IRAâ€™s. One year my wife worked one week as a substitute teacher. The school deducted from her wages for their retirement plan. That made her ineligible for a Traditional IRA for that year. We had made a contribution to her traditional IRA for the year in January. We found it most advantageous to reclassify the IRA as a Roth but it was messy since over a year had gone by. I would like to warn anyone that if you work one day in a given year for a company that has a pension plan income limits for a traditional IRA apply.

By: KC

KC — Mon, 08 Feb 2010 16:02:18 +0000

My husband and I have both always had Roth IRAs and in the past we’ve both worked. But a few years ago I quit to stay home, and we both continued to contribute to our Roths. But now we are no longer financially eligible for a Roth or the tax benefits of a traditional IRA (due to income limits). This is a good thing cause we’re making more money. But as the partner who isn’t earning a salary I often wonder if I shouldn’t have a traditional IRA (that currently wouldn’t be a tax deduction due to income limits). If something were to happen and I were left without a spouse my income would be lower and I’d still have this traditional IRA that wouldn’t be taxed as part of my regular income. What are your thoughts on this? Should I have the traditional IRA, eventhough it would currently provide no benefits but might in the event of the loss of a spouse, or just invest the money in taxable accounts and let it grow that way?

By: Michael Crowther

Michael Crowther — Mon, 08 Feb 2010 14:34:31 +0000

This is a good reminder for people. In our case, where my spouse does not work, we have contributed to a Roth IRA for her. We haven’t moved on to a traditional IRA yet, because we’re just barely maxing out on the Roth.