Traditional and Spousal IRA Contributions

[sf56]

Hello Mustache People!

I'm sorry in advance for this question which I'm sure has been answered many times. I've been searching the forums and Google but haven't found an answer I can fully understand. Just trying to find an answer in plain English. Here is my basic situation:

• $100,000 income.
• Maxing out Simple IRA.
• Maxing out HSA.
• My wife is a stay at home mom with no earned income.
• We file jointly.

My questions:

• Can I contribute to a traditional IRA and gain any tax advantage?
• Can my wife contribute to a traditional/spousal IRA using my earned income and gain any tax advantage?

My understanding has been the traditional IRA is out of bounds for me because I participate in the Simple IRA at work. Some recent reading has me confused on that point. I'm also unclear if that would eliminate my wife from eligibility as well. If she is eligible could we deduct that from our taxes? It does seem clear that at our income level we could both contribute to a ROTH, I'm just trying to clarify our tax options for 2014.

Thanks very much for any responses!

[Mississippi Mudstache]

You can definitely contribute to a traditional IRA for your wife to reduce your taxable income. I don't believe you can contribute to one yourself, since you contribute to the SIMPLE IRA through work. Someone else may be able to clarify that, though.

[Mississippi Mudstache]

• Can my wife contribute to a traditional/spousal IRA using my earned income and gain any tax advantage?

Nope. Your spouse needs to have earned income to contribute to an IRA.

Not true.

[dandarc]

http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-IRAs-Contributions

Looks like you are good for both to me.

[dandarc]

Side note - calling it a SIMPLE IRA creates so much confusion.  How about "reduced-contribution limit 401K" IRS?

[Mississippi Mudstache]

Good find, dandarc. For some reason, the IRS doesn't put that info on their SIMPLE IRA FAQ page, which is where I looked.

[sf56]

Thanks very much for the replies. You guys are quick!

So just to clarify what I am reading, as long as my MAGI is under $96,000 ($98k in 2015) then we are both okay to make the full $5,500 contribution each. We are also both able to make the full deduction of $5,500 each. The way I am reading this is if my MAGI does go over $98k in 2015 then we can both still make the contribution but neither will be able to use the deduction. Does that sound correct?

[GGNoob]

Thanks very much for the replies. You guys are quick!

So just to clarify what I am reading, as long as my MAGI is under $96,000 ($98k in 2015) then we are both okay to make the full $5,500 contribution each. We are also both able to make the full deduction of $5,500 each. The way I am reading this is if my MAGI does go over $98k in 2015 then we can both still make the contribution but neither will be able to use the deduction. Does that sound correct?

Yes, that sounds correct. However, if you cannot get the deduction from a Traditional IRA, you should contribute to a Roth IRA. No tax deduction now, but you can withdraw tax-free in retirement.

[dandarc]

There are phase-out ranges, and they are different for each of you (wife doesn't work, right?)

2014 phase out range for You:
96K - 116K

2014 phase out range for your wife:
181K - 191K

This assumes married filing jointly.  I mention it because in my own personal situation, our 2014 MAGI is coming in at about 102K, and I'm about to try and sell my wife on recharacterizing the allowed amounts to traditional - will save ~$1750 in taxes this year in our case.

[sf56]

Logan T, the ROTH is actually why I was looking into this. Was looking ahead to setting up one for my wife and started wondering about the traditional. I'm glad I followed up.

dandarc, thanks for that. I see it all now that I've clicked around those links. I guess I just needed a little push.

Thanks again for the responses, everyone!