Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Married couple question
Old 10-21-2008, 12:00 PM   #1
Recycles dryer sheets
Keyboard Ninja's Avatar
 
Join Date: Apr 2008
Posts: 157
Married couple question

In the middle of of Andrew Tobias's "The Only Investment Guide You'll Ever Need" and had a question:

Married couple with an AGI of less than $150k/year. They both max out their 401k/TSP, and the husband contributes $5000/year to a Roth IRA. If the wife contributes an additional $5000/year in a Roth IRA under her name are there any negative tax implications? This assumes that the yearly income doesn't change, and instead of storing money into a savings account or their mattress they put it in a Roth IRA.
__________________

__________________
Instead of getting angry I just LOL. Can't waste time with stupid people.
Keyboard Ninja is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 10-21-2008, 12:13 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
travelover's Avatar
 
Join Date: Mar 2007
Posts: 9,909
I don't see a downside.
__________________

__________________
Yes, I have achieved work / life balance.
travelover is online now   Reply With Quote
Old 10-21-2008, 12:17 PM   #3
Full time employment: Posting here.
GoodSense's Avatar
 
Join Date: Jul 2007
Posts: 678
I think this is a good question for your tax accountant. For a married couple, somewhere in the low $100s, the IRS begins to limit how much money can be put into a Roth IRA. I don't know what the exact numbers are, and it changes every year. If you over contribute to your Roth, you'll have to undo it per IRS rules. That's my understanding, at least.
__________________
GoodSense is offline   Reply With Quote
Old 10-21-2008, 01:22 PM   #4
Recycles dryer sheets
 
Join Date: Jan 2007
Posts: 105
Don't see any downside other than the normal Roth restrictions & penalties on early withdrawals, although as GoodSense points out there are AGI limits on contributions. If you are filing taxes jointly then the phase-out rules would apply to each individual Roth account equally.

Last year DW and I had a 'good' problem in that our AGI went higher than expected after we had already each contributed $5k to our Roths. We had to go back and have a portion of each "recharacterized" into a normal after-tax IRA due to the phase-out limits. Kind of a hassle but no complaints.....
__________________
jblack is offline   Reply With Quote
Old 10-21-2008, 03:03 PM   #5
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,620
Quote:
Originally Posted by Keyboard Ninja View Post
If the wife contributes an additional $5000/year in a Roth IRA under her name are there any negative tax implications?
No. The Roth contribution phaseout begins at a higher level ($160K?) and the couple still has the same AGI.

The advantage is that the Roth compounds tax-free and doesn't require RMDs. Can't enjoy the same benefit with a taxable account or a conventional IRA.

Did Tobias say something to imply otherwise, or did this thought just pop up while reading about investments?
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Old 10-21-2008, 03:51 PM   #6
Full time employment: Posting here.
Urchina's Avatar
 
Join Date: Feb 2008
Location: Central Coast, California
Posts: 891
We've done this and have not experienced any negative tax consequences as a result. Indeed, we expect positive tax consequences when we withdraw the funds, tax-free, during retirement!
__________________
"You'd be surprised at how much it costs to look this cheap." -- Dolly Parton
Urchina is offline   Reply With Quote
Old 10-21-2008, 04:00 PM   #7
Thinks s/he gets paid by the post
jIMOh's Avatar
 
Join Date: Apr 2007
Location: Milford, OH
Posts: 2,085
The negative tax implications are that 10k is being taxed at current rates (this might not be bad, but paying taxes is the negative side to this). If couple is eligble for Roth, that means either 15% or 25% federal taxes are being paid.

AGI does not determine taxable income though- there are deductions which enter into the equation before tax bracket is known. For example my wife and I have an AGI around 110k (25% bracket) but after deductions our taxable income is 63-65k (15% tax bracket).
__________________
Light travels faster than sound. That is why some people appear bright until you hear them speak. One person's stupidity is another person's job security.
jIMOh is offline   Reply With Quote
Old 10-21-2008, 05:21 PM   #8
Recycles dryer sheets
Keyboard Ninja's Avatar
 
Join Date: Apr 2008
Posts: 157
Quote:
Originally Posted by Nords View Post
Did Tobias say something to imply otherwise, or did this thought just pop up while reading about investments?
I was reading the ROTH IRA section when I looked up and noticed a female in a "form fitted" flight suit walking by. I suppose the thought just came to me right afterwards
__________________
Instead of getting angry I just LOL. Can't waste time with stupid people.
Keyboard Ninja is offline   Reply With Quote
Old 10-22-2008, 06:32 AM   #9
Thinks s/he gets paid by the post
OAG's Avatar
 
Join Date: Jun 2006
Location: Central, Ohio, USA
Posts: 2,598
Quote:
Originally Posted by Keyboard Ninja View Post
This assumes that the yearly income doesn't change, and instead of storing money into a savings account or their mattress they put it in a Roth IRA.
Not sure what you mean by "savings account" but you can have ROTH funds in Certificates of Deposit (FDIC to $250K for each account holder). But I am sure you knew that!
__________________
Vietnam Veteran, CW4 USA, Retired 1979
OAG is offline   Reply With Quote
Old 10-22-2008, 02:55 PM   #10
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,620
Quote:
Originally Posted by Keyboard Ninja View Post
I was reading the ROTH IRA section when I looked up and noticed a female in a "form fitted" flight suit walking by. I suppose the thought just came to me right afterwards
I've never seen a flight suit or a set of submarine coveralls that wasn't "form fitted"... and fitting more tightly every year...

In 2002, 20% of the Air Force's married enlisted personnel had military spouses-- double the rate of the other services.

America's Military Population demographic study.pdf - Windows Live SkyDrive
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Old 10-30-2008, 05:52 PM   #11
Dryer sheet wannabe
hcho3528's Avatar
 
Join Date: Nov 2007
Posts: 17
Income limits

As with many tools that offer tax advantages, Congress has limited who can contribute to a Roth IRA, based upon income. A taxpayer can only contribute the maximum amount listed at the top of the page if their Modified Adjusted Gross Income (MAGI) is below a certain level (the bottom of the range shown below). Otherwise, a phase-out of allowed contributions runs proportionally throughout the MAGI ranges shown below. Once MAGI hits the top of the range, no contribution is allowed at all, however a minimum of $200 may be contributed as long as MAGI is below the top of the range (e.g. A single 40 year old with MAGI $115,990 may still contribute $200 to a Roth IRA vs. $30). Excess Roth IRA contributions may be recharacterized into Traditional IRA contributions as long as the combined contributions do not exceed that tax year's limit. The Roth IRA MAGI phase out ranges for 2008 are:
  • Single filers: Up to $101,000 (to qualify for a full contribution); $101,000-$116,000 (to be eligible for a partial contribution)
  • Joint filers: Up to $159,000 (to qualify for a full contribution); $159,000-$169,000 (to be eligible for a partial contribution)
  • Married filing separately (if the couple lived together for any part of the year): $0 (to qualify for a full contribution); $0-$10,000 (to be eligible for a partial contribution).
The lower number represents the point at which the taxpayer is no longer allowed to contribute the maximum yearly contribution. The upper number is the point as of which the taxpayer is no longer allowed to contribute at all. Note that people who are married and living together, but who file separately, are only allowed to contribute a relatively small amount.
However, once a Roth IRA is established, the balance in the account remains tax-sheltered, even if the taxpayer's income rises above the threshold. (The thresholds are just for annual eligibility to contribute, not for eligibility to maintain an account.)
To be eligible, you must meet the earned income minimum requirement. In order to make a contribution, you must have taxable compensation (not taxable income from investments). If you make only $2000 in taxable compensation, your maximum IRA contribution is $2000.
__________________

__________________
hcho3528 is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
A couple stocks out, a couple ones in... Art G Stock Picking and Market Strategy 0 02-11-2008 09:03 AM
My son just got married ... bigla FIRE and Money 21 11-10-2007 09:58 AM
Poll on Health Insurance Costs for a married Couple with no kids Cut-Throat Health and Early Retirement 13 02-12-2007 01:12 AM
For currently married MEN only. MUST be married for at least 10 years. Sam Other topics 33 01-08-2007 02:24 PM
Should a married couple have individual retirement investing plans? Anaya_1de Young Dreamers 28 12-05-2006 08:57 PM

 

 
All times are GMT -6. The time now is 04:45 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.