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Spousal IRA’s are one of the top tax tricks used by financial planners to help married couples reduce their tax bill.  Here is how it works:

In most cases you need “earned income” to be eligible to make a contribution to an Individual Retirement Account (“IRA”).  The contribution limits for 2017 is the lesser of 100% of your AGI or $5,500 for individuals under the age of 50.  If you are age 50 or older, you are eligible for the $1,000 catch-up making your limit $6,500.

There is an exception for “Spousal IRAs” and there are two cases where this strategy works very well.

Case 1:  One spouse works and the other spouse does not.  The employed spouse is currently maxing out their contributions to their employer sponsored retirement plan and they are looking for other ways to reduce their income tax liability.

If the AGI (adjusted gross income) for that couple is below $186,000 in 2017, the employed spouse can make a contribution to a Spousal Traditional IRA up to the $5,500/$6,500 limit even though their spouse had no “earned income”.    It should also be noted that a contribution can be made to either a Traditional IRA or Roth IRA but the contributions to the Roth IRA do not reduce the tax liability because they are made with after tax dollars.

Case 2:  One spouse is over the age of 70 ½ and still working (part time or full time) while the other spouse is retired.  IRA rules state that once you are age 70½ or older you can no longer make contributions to a traditional IRA.  However, if you are age 70½ or older BUT your spouse is under the age of 70½, you still can make a pre-tax contribution to a traditional IRA for your spouse.

 

Michael Ruger

About Michael………

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.

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Investment advisory services offered through Greenbush Financial Group, LLC. Greenbush Financial Group, LLC is a Registered Investment Advisor. Securities offered through American Portfolio Financial Services, Inc (APFS). Member FINRA/SIPC. Greenbush Financial Group, LLC is not affiliated with APFS. APFS is not affiliated with any other named business entity. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not ensure against market risk. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.