If you’re married, you can file a joint tax return with your spouse or file separate returns. If your incomes are similar and you’re worried about moving into a higher tax bracket, it can make sense to file separately. It might also be a good idea if one of you normally claims a significant amount of miscellaneous deductions.
Filing a separate return can save you money at tax time, but it could affect your ability to save for retirement in an IRA. If you’re married and file separately, here’s what you need to know about making IRA contributions.
- Traditional and Roth IRAs are a tax-advantaged way to save for retirement.
- With Roth IRAs, your income, filing status, and living arrangement affect your eligibility and contribution limits.
- With traditional IRAs, the upfront tax deduction depends on your income, filing status, living arrangement, and whether you’re covered by a plan at work.
Saving in a Roth Could Be More Difficult
Roth IRAs can be a great way to save for the future while enjoying some tax advantages. With a Roth IRA, your qualified withdrawals are tax-free. That’s an advantage if you expect to be in a higher tax bracket during retirement.
If you’re married filing separately, your ability to contribute to a Roth IRA hinges on how much you earn and your living arrangement.
If you lived with your spouse at any time during the year and your modified adjusted gross income (MAGI) is less than $10,000, you can contribute a reduced amount to a Roth IRA. You can’t contribute anything at all if you make $10,000 or more.
A different set of rules apply if you’re married filing separately and you don’t live together at all. If your modified adjusted gross income is less than $125,000 for 2021 ($124,000 for 2020), you can contribute up to the annual limit. For 2020 and 2021, the annual contribution limit is set at $6,000 per year, or $7,000 if you’re age 50 or older.
If you earn between $125,000 and $140,000 ($124,000 to $139,000), you can contribute a reduced amount. Anything over $140,000 ($139,000 for 2020) would put you out of the income range to save in a Roth IRA.
A Traditional IRA May Be a Better Choice
A traditional IRA doesn’t offer tax-free withdrawals in retirement, but you do have the advantage of deducting your annual contributions. That can lower your tax liability since deductions reduce your taxable income for the year.
You may be able to take the deduction if you’re married filing separately. But it depends on your income, your living arrangement, and whether you’re covered by a retirement plan at work.
Covered by a Work Plan
The amount you can deduct in traditional IRA contributions hinges on:
- Whether you lived with your spouse at any time during the year
- Your income
The IRS considers you to be single even when you’re married if you and your spouse don’t live together.
If you and your spouse lived apart and your modified adjusted gross income is $66,000 or less for 2021 ($65,000 for 2019), you can take the full deduction. If you earn between $66,000 and $76,000 ($65,000 to $75,000 for 2020), you’re eligible for a partial deduction. And you can’t deduct any of your contributions if you earn more than $76,000 ($75,000 for 2020).
If you lived with your spouse, the income limits for taking the deduction are much lower. You can snag a partial deduction if your modified adjusted gross income is less than $10,000. But no deduction is allowed if your income is above that amount.
Not Covered by a Work Plan
The deduction rules are similar for couples who file separately and aren’t covered by a retirement plan at work. What’s different are the income limits for couples who file separately and live apart. In that scenario, you can take the full deduction, up to the annual contribution limit, regardless of how much you make.
If, however, you file separate returns, live together, and your spouse is covered by a retirement plan at their job, you’re only eligible for a partial deduction, assuming your modified adjusted gross income is less than $10,000. Again, if your income is over $10,000, you can’t take any deduction at all.
The Bottom Line
The fact that you’re married filing separately may affect whether you can deduct traditional IRA contributions. But it doesn’t bar you from making them. If you’re set on filing separate returns and your income is too high to contribute to a Roth, you may have to opt for contributing to a traditional IRA instead, and taking a partial or even no deduction.
Talking with a tax or financial professional can help you determine whether filing separate returns makes sense, and which IRA is the right fit.