Author Topic: IRA, Spouse, and 401k issues  (Read 2966 times)

Heroes821

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IRA, Spouse, and 401k issues
« on: December 22, 2016, 12:03:41 PM »
Hello knowledgeable MMMers. I thought I had a handle on how retirement accounts work, but a short conversation with CPA is making think I'm completely wrong.

First I was under the impression that as long as I met the income requirements for an IRA I could contribute to it regardless of having a 401k or not. T-ira or Roth.

I was also under the impression that if I had a spouse that didn't work that I could contribute to an IRA in her name if we file jointly.

My CPA said this only works in a year where she has w-2 income and he said that since I was with an employer with a 401k that I used during the year I can't put anything into a t-IRA this year. I don't think I remembered to ask about a roth.

Actual situation I'm dealing with: Wife had 2 w2 jobs for the 2016 and did not participate in company 401k at the one job that offered it. 2017 she will probably not have any income herself.

I had employment with a company that had a 401k + matching. I contributed as roth for a few months, then swapped to traditional 401k for a few months then got laid off and started an LLC doing 1099 work that will function as an S-corp in 2017.  I opened a solo 401k with my LLC.

I hope that covers all my questions and confusion.

seattlecyclone

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Re: IRA, Spouse, and 401k issues
« Reply #1 on: December 22, 2016, 12:25:04 PM »
First I was under the impression that as long as I met the income requirements for an IRA I could contribute to it regardless of having a 401k or not. T-ira or Roth.

There are no limits for contributing to a traditional IRA. Anyone who has earned income can do that. The income limits come into play when you wish to deduct your traditional contribution, and whether or not you have a workplace retirement plan such as a 401(k) does determine which income limit applies to you. There's also an income limit for contributing to a Roth IRA through the "front door," though this income limit doesn't care whether you have a 401(k) or not.

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I was also under the impression that if I had a spouse that didn't work that I could contribute to an IRA in her name if we file jointly.

Yes, this is true. As long as your combined earned income is at least $11,000, you can contribute the full $5,500 to an IRA in each of your names.

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My CPA said this only works in a year where she has w-2 income and he said that since I was with an employer with a 401k that I used during the year I can't put anything into a t-IRA this year. I don't think I remembered to ask about a roth.

Your CPA is mistaken. A spouse does not need W-2 income to contribute to an IRA if you had enough income to cover both contributions. Per the IRS, the income limit for deducting a full traditional IRA contribution if you had no workplace retirement plan but your spouse did is $184,000.

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Actual situation I'm dealing with: Wife had 2 w2 jobs for the 2016 and did not participate in company 401k at the one job that offered it. 2017 she will probably not have any income herself.

Well this is a bit of a different animal. She had a job and had a 401(k) available, so she may have been "covered" by a retirement plan whether she contributed or not. This won't affect whether or not she can contribute to an IRA. Remember, anyone can do that. However it may affect which income limit applies when determining whether the contribution can be deducted.

SeattleCPA

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Re: IRA, Spouse, and 401k issues
« Reply #2 on: December 22, 2016, 12:50:54 PM »
Seattle Cyclone... you have good tax knowledge. :-)

Heroes821

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Re: IRA, Spouse, and 401k issues
« Reply #3 on: December 22, 2016, 12:58:05 PM »
Hmm. Awesome information. Thank you.

I was definitely thinking the income limits  meant you couldn't do it at all instead of not being deductible. I will definitely work with him on that.

MDM

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Re: IRA, Spouse, and 401k issues
« Reply #4 on: December 24, 2016, 07:41:53 AM »
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Actual situation I'm dealing with: Wife had 2 w2 jobs for the 2016 and did not participate in company 401k at the one job that offered it. 2017 she will probably not have any income herself.
Well this is a bit of a different animal. She had a job and had a 401(k) available, so she may have been "covered" by a retirement plan whether she contributed or not.
"may have been" is exactly correct. E.g., if the employer contributed anything - even if your wife contributed nothing - then she was covered.  But if nobody contributed anything to her 401k (and there is no defined benefit pension involved) then she was not covered.  In that case the "not covered but your spouse was" IRS limits apply.

Heroes821

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Re: IRA, Spouse, and 401k issues
« Reply #5 on: December 27, 2016, 06:10:06 AM »
Quote
Actual situation I'm dealing with: Wife had 2 w2 jobs for the 2016 and did not participate in company 401k at the one job that offered it. 2017 she will probably not have any income herself.
Well this is a bit of a different animal. She had a job and had a 401(k) available, so she may have been "covered" by a retirement plan whether she contributed or not.
"may have been" is exactly correct. E.g., if the employer contributed anything - even if your wife contributed nothing - then she was covered.  But if nobody contributed anything to her 401k (and there is no defined benefit pension involved) then she was not covered.  In that case the "not covered but your spouse was" IRS limits apply.

Thanks I guess I'll have to wait for her company to send us the paperwork from last year.

MetalCap

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Re: IRA, Spouse, and 401k issues
« Reply #6 on: December 27, 2016, 12:14:48 PM »
https://www.irs.gov/taxtopics/tc451.html

Has a worksheet that was pretty simple for me to hamfist what I could deduct this year and next (2016 wife ended work, 2017 wife will have no w2)

Heroes821

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Re: IRA, Spouse, and 401k issues
« Reply #7 on: December 29, 2016, 06:19:38 AM »
Thanks Metal, I will check that out.

 

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