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    #1

    IRA Deduction

    MFJ couple. Husband is collecting SSA, pension and had W-2 wages of about $3,000. He will not be contributing anything to an IRA.

    His wife is 63 and her only source of earned income was a W-2 of about $5,000 but she contributed $7,000 to a traditional IRA. Their AGI is all of $25,000 and they do not have any income .

    It's my understanding that in this case, the spouse can contribute the lower of $7,000 or her earned income. But my tax software has gotten the sum of their W-2 income, split it in half and limited her contribution by this amount although it's lower than her earned income.

    Is the software wrong? I have done research and cannot find anything that supports these numbers.

    BTW, I appreciate this board. I work by myself and now work at home. I try to do as much of my research on my own but there are times, I need guidance and there are times, I just overthink things.
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    #2
    TTB PP 13-7
    As I understand the rules, total traditional IRA spousal contributions on the return would be limited to $8,000
    but this $8K can be allocated between the spouses any way they want, limited to no more than $7,000 for either
    spouse assuming they are both over age 50. But why would these people - given their apparent low marginal
    tax bracket - want to use a traditional IRA for their contributions ?
    Assuming they are eligible, wouldn't a Roth IRA be a better choice ?
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      #3
      RWG 1950- And I thought the wage limit was my overthinking thing. As for why the Roth v. traditional---she did it on their own. Clients tend to do things on the their own. I am going to deal with the limit issue and then bring it up.

      Thank you

      Comment

        #4
        I agree with everything RWG said.

        As for the Traditional versus Roth, your client should still be able to "recharacterize" some the IRA contribution. That will retroactively turn it into a Roth contribution rather than a Traditional. With AGI of only $25,000 and the large standard deduction, there is no reason on the Federal tax return to have a Traditional IRA contribution.
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