I looked around on the forum but couldn't find anything that seemed specific to my situation, so I am seeking new advice from all you tax savvy mustachians. I think my return to very part time work might have messed up our IRA contributions/tax implications for the last year…any insight is much appreciated!
Overview – married filing jointly, AGI/mAGI <184k (170k ish), husband covered by a 401k at work and a vanguard rIRA, I have a tIRA at vanguard and not covered by an employer plan.
Details – I quit my job to become a SAHM effective Jan 1, 2016. We rolled my old employer 403b into a tIRA at vanguard so that we could continue to contribute 5500/yr in my name despite my lack of income (aka spousal IRA). No problem. I had no employment or income from Jan 1-Sept 2016.
In September, I had the unexpected opportunity to start working VERY part time to keep my foot in the door professionally (a few hours a week). I opted out of the employer retirement plan due to a lack of match for part time employees and to ensure that I would still be eligible to contribute to my tIRA at vanguard. The trouble is, my taxable compensation/earnings from Sept-Dec 31, 2016 is extremely low….<2000 gross for the year. We contributed 5500 to my tIRA for 2016, so my contribution ended up higher than my personal earned income by about 3500. I am now trying to figure out if this is acceptable (because we are joint filers and we meet all other contribution criteria) or if I will be subjected to a penalty because I’m not allowed to contribute above my own earned income to my tIRA even if we file jointly.
Everything I can find talks about single filers and taxable compensation restrictions (they can’t contribute above their taxable income amount), or completely non-earning spouses and their ability to have a spousal IRA (they can contribute up to the max provided the household AGI and other criteria are met). I can’t seem to find anything that can tell me clearly how extremely low earners who jointly file with their spouse should handle their IRA contributions.
So I guess my questions are:
1 – Do I have to limit my IRA contributions to whatever I personally made (2k) even if I file jointly?
2 – What is the easiest/most fool proof way of remedying the situation if needed? Can I just forgo my tIRA deduction in my taxes, and then next year make sure I account for 2016’s excess? Or do I have to formally withdraw the funds from the IRA before the tax deadline?