Author Topic: Spousal IRA  (Read 3692 times)

cdub

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Spousal IRA
« on: December 22, 2013, 05:18:40 PM »
I'm self-employed via an S Corporation. My wife currently isn't working and staying home with our 3 kids.

I recently started an Ind. 401k and will be maxing that out at $17,500.

Can I then also max out a Traditional IRA for myself as well as my spouse. I thought I read somewhere that hers wouldn't be tax deductible if I'm contributing to a 401k but I could be wrong.

So theoretically it could be:

$17,500 401k
$5,500 my IRA
$5,500 my wife's IRA

$28,500 saved tax deductibly. :)

Anyone know? Or does this not work?

iamlindoro

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Re: Spousal IRA
« Reply #1 on: December 22, 2013, 05:28:01 PM »
I recently started an Ind. 401k and will be maxing that out at $17,500.

I'm going to immediately go off-topic:  17,500 is only the maximum *employee* contribution you can put into a solo 401(k).  Remember that you are entitled to make "employer" contributions to yourself too, so the total contribution can be up to 51K (52K in 2014) per year.  In a sole proprietorship (non-Corp) the amount contributed by the "employer" (yourself) comes right off your income, too.  In an S-Corp, it's a deductible business expense and also reduces business taxes.

Just something to consider in your bag of tricks.
« Last Edit: December 22, 2013, 05:30:22 PM by iamlindoro »

iamlindoro

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Re: Spousal IRA
« Reply #2 on: December 22, 2013, 05:31:38 PM »
Here, this calculator will help:

http://www.sensefinancial.com/services/solo401k/solo-401k-plan-calculator/

Just figured since you were happy about $28.5K tax deductible you might be even more excited about 52K + IRAs, etc. :)

cdub

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Re: Spousal IRA
« Reply #3 on: December 23, 2013, 08:50:13 AM »
Hmmm... my plan was to max out the 401k and then use the leftover for the wife's IRA and then take out the mortgage and then go to taxable investments when I'm mortgage free. But I'll look into the other option too.

WillPen

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Re: Spousal IRA
« Reply #4 on: December 23, 2013, 08:56:51 AM »
I think if you're married and filing jointly then your contributions to both IRA accounts are tax deductible.

iamlindoro

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Re: Spousal IRA
« Reply #5 on: December 23, 2013, 09:03:06 AM »
Hmmm... my plan was to max out the 401k and then use the leftover for the wife's IRA and then take out the mortgage and then go to taxable investments when I'm mortgage free. But I'll look into the other option too.

Yeah, but what I'm saying is you're not maxing out your 401k right now.  In an individual 401(k) you are both the employer and employee, and that *whole* 51K is tax-free.  You're leaving tax advantage on the table.

cdub

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Re: Spousal IRA
« Reply #6 on: December 23, 2013, 10:44:06 AM »
Hmmm... my plan was to max out the 401k and then use the leftover for the wife's IRA and then take out the mortgage and then go to taxable investments when I'm mortgage free. But I'll look into the other option too.

Yeah, but what I'm saying is you're not maxing out your 401k right now.  In an individual 401(k) you are both the employer and employee, and that *whole* 51K is tax-free.  You're leaving tax advantage on the table.

Yes.. but then I'd have no money to put towards my mortgage or taxable accounts which are needed for me for ER

iamlindoro

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Re: Spousal IRA
« Reply #7 on: December 23, 2013, 11:08:48 AM »
OK... I might have misunderstood the intent of your question, then.  It seemed to be how to maximize your tax advantage, which you can do to a much greater extent with your Solo 401(k).  It's not like you *have* to put in 51K, that's just the max-- put in whatever amount you like up to that amount (or up to the maximum amount based on your income, anyway) and take the tax break.  If that's not the intent, then why the concern over whether you get a tax break on your spouse's IRA? 
« Last Edit: December 23, 2013, 11:11:25 AM by iamlindoro »