Deductible IRA While Drawing Pension?

[travelover]

OK, I'm not having much luck answering this with a search engine.

I retired in March 2007 at age 54 and am drawing a pension from my old employer. This same employer decided to give me a belated bonus of $1000 in 2008. I have no other earned income. The W2 for this $1000 does not have the retirement plan box 13 checked

My wife still works and our combined income is less than $150K.

Can I open a deductible IRA for 2008 and if so, for how much?

 

[MasterBlaster]

This is somewhat involved. You can always contribute your $1000 of earned income into an IRA. However if you want to do more than that there are lots of issues.

Above the $1000, If you want to have an IRA (or extra IRA contributions) under your name your IRA deduction is then ruled by the spousal IRA rules. In this case you use the earned income of the spouse to qwualify for IRA deductions.

Is your wife covered by a qualified retirement/401k plan ? that may make a difference. I assume that you were not based on the checked box comment.

If your wife is an active participant in an employer pension/401k account then you can make deductable contibutions up to the $6k limit provided that your AGI income is less than $159k in 2008. The deduction then phases out up to $169k AGI income. However for the (active participant) spouse their deductable IRA contribution starts to phase out at $85k and is totally phased out at $105k AGI.

Here is a website that lists the rules:

http://www.investopedia.com/articles/retirement/03/011603.asp

The IRS also has a publication that describes the rules.

 

[travelover]

This is somewhat involved. You can always contribute your $1000 of earned income into an IRA. However if you want to do more than that there are lots of issues.

So you are saying I can contribute $1000 to a deductible IRA no matter what?

Above that, If you want to have an IRA under your name your IRA deduction is then ruled by the spousal IRA rules.

OK

Is your wife covered by a qualified retirement/401k plan ? that may make a difference.

Yes, a qualified plan and a 403(b)

If so and your Adjusted Gross Income is less than $85k then you (both ) can deduct full the IRA amount this year ($6k = $5k + $1k for catch up contribution for oldsters). Your wife can also do the same.

Are you sure about these numbers?

A nonworking spouse can make a deductible IRA contribution of up to $5,000 for 2009 ($6,000 if age 50 or older as of 12/31/09) as long as the couple files a joint return, and the working spouse has enough earned income to cover the contribution. However, the deductibility of the nonworking spouse's contribution is phased out for couples with adjusted gross income (AGI) between $166,000 and $176,000, provided that the working spouse is covered by a qualified retirement plan (via a job or self-employment). The working spouse's ability to make a deductible contribution for 2009 is phased out starting at AGI of $89,000. (See the table below for phase-out ranges.)

http://www.smartmoney.com/personal-finance/retirement/spousal-iras-7956/

the deductibility then phases out to incomes of $105k. Above that the IRA is not deductible.

AGI is over $105

If your wife is not an active participant in an employer pension/401k account then you both can make deductable contibutions upt to the $6k limit provided that your AGI income is less than $159 this year. The deduction then phases out up to $169k AGI income.

The quoted article above would indicate that I can deduct the full $6000 assuming 2009 rules are same as 2008

 

[MasterBlaster]

Travelover:

I believe that your deductable contribution can be made up to $6k. It looks though like the wife may not deduct any contribution. I posted some incorrect info originally. The post has now been edited to be correct.

I am sorry for the confusion.

 

[travelover]

Travelover:

I believe that your deductable contribution can be made up to $6k. It looks though like the wife may not deduct any contribution. I posted some incorrect info originally. The post has now been edited to be correct.

I am sorry for the confusion.

Thanks, it looks like we both came to the same conclusion.