TIRA deductibility if MFJ and only one has no retirement plan

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  • #2363
    RustyShackleford
    Participant

    I am trying to determine if my Trad IRA contribution is deductible. I am filing MFJ with my wife (with whom I live). She earns a lot and is covered by a retirement plan at work; I am retired and am not covered. Our joint AGI is about $150,000.

    I know that I can make an IRA contribution based on her compensation. And I know that the TIRA deductibility phase-out starts at $189,000 since we file MFJ and one of us is covered by a retirement plan while the other is not.

    But I’m not 100% clear that these two things can be combined. Since SHE is the one whose compensation is enabling me to make an IRA contribution, but SHE is covered by a retirement plan at work, is it still true that our AGI is considered to be below the deductibility phase-out and thus my TIRA contribution would be deductible ?

    #2366
    Alan S.
    Participant

    You each have your own modified AGI limits to make a deductible contribution. The MAGI that applies is from your joint return.
    1) Since YOU are not an active participant, the MAGI phaseout range for you to take a deduction is 189k to 199k.
    2) Since she IS an active participant, her ability to deduct a TIRA contribution phases out between 101k and 121k.
    3) So it looks like YOU can take the deduction and she cannot, but she could make a Roth contribution instead. However, modified AGI can be quite different from Form 1040 AGI, so be sure you calculate modified AGI figures before making 2018 contributions.

    #2367
    RustyShackleford
    Participant

    Thanks, Alan. So I guess even though we’re M(arried) and FJ (filing jointly), a single number (MAGI) from our MFJ return affects the two of us differently. Kinda crazy.

    Sometimes I wish the IRS just treated people the same regardless of their marital status. Although clearly I’m reaping benefits from this, at the expense of a lot of head-scratching, while benefiting from generous sharing of knowledge by people like you.

    #5270
    RustyShackleford
    Participant

    So last year I assumed I could deduct my TIRA contribution. Based my “not being covered by a retirement plan at work” (even though my spouse is).

    Looking at this again, this tax season, one thing worries me … Am I really not covered by a retirement plan at work ? Yes, I am retired, so not “at work”. But I have a defined-contribution retirement plan (to which I am no longer contributing, and cannot contribute) at TIAA-CREF, and am currently receiving a small lifetime annuity from it.

    #5274
    RustyShackleford
    Participant

    I’m being paranoid.

    #5284
    Alan S.
    Participant

    Being “covered” means that contributions are being made by the participant or the employer. It does not include receiving distributions from a plan. Therefore, you are not an active participant.

    However, as described by last year’s posts, if your joint MAGI is high enough, you still cannot take a deduction because your wife is an active participant.

    #5286
    RustyShackleford
    Participant

    Thanks. She’s gone to half-time, so that won’t be an issue.

    I’m actually doing a cute thing with my TIRA. With the new much higher standard deduction, we can no longer itemize and deduct charitable contributions. So I’m treating my TIRA as a DAF. Contributions (regular deductible TIRA contributions, per this thread) reduce our taxable income. Starting in a few years (age 70, about the time my actual DAF runs out, after I made a big contribution of appreciated stock in the last year before the new tax law), I can make QCD charitable contributions from my TIRA.

    Better than a DAF in several ways. It’ll reduce my RMDs. And it’s not irrevocable: if I decide I need that money for spending after all, I can choose not to QCD it.

    #5287
    Alan S.
    Participant

    That will work.
    But once you reach 70.5, although the Secure Act allows you to make deductible TIRA contribution if you or spouse has earned income, you wouldn’t want to do it due to a severe anti abuse rule that states that any deductible TIRA contributions made at 70.5 or later directly offset QCDs you would make at any point thereafter.

    This can be at least be partially countered by having one spouse make the deductible contributions and the other spouse distributing the QCDs. Or just make Roth contributions so your QCD potential will not be impaired.

    #5288
    RustyShackleford
    Participant

    Oh, I’ll build up enough balance between now and when I turn 70.5 to fund my charitable giving for quite some time.

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