Will my wife be allowed to take the full deduction on her Traditional IRA contributions?

I currently work full time and my wife is unemployed. We file our taxes jointly and our MAGI for 2016 was $140,000. I contributed the max to my company's 401(k) plan last year and plan to do the same for 2017. We would like to open a spousal Traditional IRA in my wife's name. If our MAGI stays the same for 2017, will she be able to take the full deduction on her Traditional IRA contributions?

IRAs, Tax Deductions / Credits
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April 2017

Yes, she will be able to take the full deduction on her traditional IRA contribution. An unemployed wife can contribute to an IRA by borrowing her husband’s income (this is not the type of borrowing she has to pay back). The husband needs to share the income by filing a joint tax return with the wife.

A nonworking wife can use the taxable compensation of her husband to make an IRA contribution up to the maximum of $5,500 per year (or $6,500 if she is 50 or older) for 2017. Her IRA contribution cannot exceed the husband’s taxable compensation less his IRA contributions. As long as he earns enough taxable compensation, both of them can contribute the maximum to their IRAs. The husband is not required to make an IRA contribution for the wife to make one using his taxable compensation.

The eligibility requirements for the spousal IRA are straightforward:

  • Marital Status: Married
  • Tax Filing Status: Married, filing jointly
  • Earnings: Contributing spouse must have compensation/earned income that amounts to at least the amount annually contributed to the non-working spouse’s IRA. If the contributing spouse also has an IRA, annual compensation/earned income must exceed the combined contributions the IRAs.
  • Age: The non-working spouse must be under 70 1/2 in the year of the contribution for a traditional IRA. There are no age restrictions on a Roth IRA for a non-working spouse.

Understand that IRAs must be held separately (not jointly). This means that the non-working spouse owns the assets in the IRA. Once your working spouse contributes to the IRA, the money becomes hers. The IRA is in her name and opened with her social security number, and it remains hers even if you divorce.

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