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401k Plan and Spousal IRA Question
Old 10-27-2005, 11:12 AM   #1
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401k Plan and Spousal IRA Question

I have done a small amount of contract work this year, I have maxed out my 401k. Does anyone know if I can open a spousal IRA for my wife and get the full deduction? ($4000 I think).

I cannot find much on this. I can find articles that talk about having and IRA then getting a spousal IRA for the spouse, but not in conjunction with a 401k.

Thanks

SWR
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Re: 401k Plan and Spousal IRA Question
Old 10-27-2005, 11:24 AM   #2
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Re: 401k Plan and Spousal IRA Question

You have to file a joint tax return. If only one spouse is covered by a 401(k), then then the other spouse can have a traditional IRA. Full deductibility for AGI less than $150,000; partial deductibility for AGI of $150,000-$160,000. If you are looking at a ROTH, the AGI limitations are the same.

For 2005, IRA max for an individual is $4000, plus an extra $500 if over 50.

EDIT: I should provide you a source; the applicable IRS publication: http://www.irs.gov/publications/p590/
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Re: 401k Plan and Spousal IRA Question
Old 10-27-2005, 02:22 PM   #3
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Re: 401k Plan and Spousal IRA Question

Quote:
Originally Posted by Martha
You have to file a joint tax return. If only one spouse is covered by a 401(k), then then the other spouse can have a traditional IRA. Full deductibility for AGI less than $150,000; partial deductibility for AGI of $150,000-$160,000. If you are looking at a ROTH, the AGI limitations are the same.

For 2005, IRA max for an individual is $4000, plus an extra $500 if over 50.

EDIT: I should provide you a source; the applicable IRS publication: http://www.irs.gov/publications/p590/
Thanks Matha. Just what I needed. I was unsure of the 401k relationship. It is all clear now I think. I assume when they refer to an Employer Retirement Plan they are NOT referrring to a 401K

" If either you or your spouse was covered by an employer retirement plan, you may be entitled to only a partial (reduced) deduction or no deduction at all, depending on your income and your filing status."

SWR
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Re: 401k Plan and Spousal IRA Question
Old 10-27-2005, 02:34 PM   #4
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Re: 401k Plan and Spousal IRA Question

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Originally Posted by ShokWaveRider
Thanks Matha. Just what I needed. I was unsure of the 401k relationship. It is all clear now I think. I assume when they refer to an Employer Retirement Plan they are NOT referrring to a 401K

" If either you or your spouse was covered by an employer retirement plan, you may be entitled to only a partial (reduced) deduction or no deduction at all, depending on your income and your filing status."

SWR
Look at table 1-3 in the publication, which gives the answer I gave in my first post. . A 401(k) is in fact an employer retirement plan, but because your spouse is not covered by that plan, she can contribute to a fully deductible IRA if your family's AGI is not above the $150,000 I mentioned above. The deduction is phased out between AGI of $150,000 and $160,000. If you weren't covered by a 401(k), then there would be no AGI limits.

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Re: 401k Plan and Spousal IRA Question
Old 10-27-2005, 07:20 PM   #5
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Re: 401k Plan and Spousal IRA Question

Quote:
Originally Posted by Martha
You have to file a joint tax return. If only one spouse is covered by a 401(k), then then the other spouse can have a traditional IRA. Full deductibility for AGI less than $150,000; partial deductibility for AGI of $150,000-$160,000. If you are looking at a ROTH, the AGI limitations are the same.
Hmm, Did I read this right? I have a 401(k), wife does not (although she does have a 403(b) and a 457). Are you saying that we can open up a traditional IRA for her that would be fully deductible if our AGI was < $150k? I'm aware of the AGI limits for the Roth (150k) and that's what we've been doing...but I had no idea that the AGI limits for deductibility for traditional was so high. Did this change recently?
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Re: 401k Plan and Spousal IRA Question
Old 10-27-2005, 11:24 PM   #6
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Re: 401k Plan and Spousal IRA Question

Is your wife contributing to her 403(b)? If so, then your best bet is to go with a Roth IRA because it isn't likely that you would qualify for a fully deductible Traditional IRA since you cannot have a Modified AGI of $75,000 or more. You can still contribute to the IRA (as long as your MAGI is less than $150,000, phased out up to $160,000), it just won't be deductible. In that case, a Roth is the better choice.

I hope this was clear and helpful.
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Re: 401k Plan and Spousal IRA Question
Old 10-28-2005, 09:10 AM   #7
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Re: 401k Plan and Spousal IRA Question

Quote:
Originally Posted by WanderALot
Hmm, Did I read this right? I have a 401(k), wife does not (although she does have a 403(b) and a 457). Are you saying that we can open up a traditional IRA for her that would be fully deductible if our AGI was < $150k? I'm aware of the AGI limits for the Roth (150k) and that's what we've been doing...but I had no idea that the AGI limits for deductibility for traditional was so high. Did this change recently?
My answer only applied to Shock, who's wife did not have a retirement plan. Because your wife is covered by a plan, the income limits are much smaller for a deductible IRA. You are probably better off with a ROTH, if your joint AGI is less than $150,000-$160,000. The publication I linked to in my first post also answers the questions of how much you can contribute to IRAs if you are both covered by retirement plans at work, whether a 401(k), 403(b) or 457 plan.
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