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There’s Still a Way to Double Your Retirement Tax Breaks Before Filing

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David M. Brenner, ChFC®, CLU®

D. M. Brenner, Inc.
Phone : (858) 345-1001
Schedule a Meeting

The window to use most tax breaks slams shut at year-end, so there aren’t many ways Americans can still cut their 2023 taxes.

But here’s an option many filers overlook: a spousal IRA contribution. It can benefit married couples when one partner earns less than the other—or even nothing.  


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Eligible couples can use it to double contributions to traditional individual retirement accounts (IRAs) and deduct $15,000 rather than $7,500 for 2023, as long as they do so by April 15 this year (April 17 in Maine and Massachusetts). Or they can contribute to Roth IRAs with no deduction. 

The idea of savings contributions for nonearning spouses emerged in the 1970s when IRAs were enacted. Congress expanded them in the mid-nineties at the urging of Sen. Kay Bailey Hutchison (R., Texas), who believed that unpaid and lower-earning spouses—typically women—deserved a savings incentive. The provision now bears her name, though it’s seldom used. 

Spousal IRA contributions have long been useful to couples when one partner forgoes employment or leaves the workforce temporarily to care for children or an elderly parent. Now many baby boomers are opting in when one spouse is retired and the other still working.

JoAnn May, a certified financial planner and financial adviser near Chicago, says she often recommends these contributions and recently funded one for her husband, age 60, who just retired. “We’re always looking for ways to save more, and this is a good one,” she says.  

For spousal contributions to a Roth IRA, the chief benefits are familiar: moving dollars to an account where growth and withdrawals can be tax-free and contributions can come out tax-free at any time.

Spousal contributions to traditional IRAs that are tax deductible bring the benefit of reducing reported income. Given the many phase-ins, phase-outs, and thresholds lurking in federal and state laws, lower income can lead to other savings.

May says she advised one couple to make a deductible spousal IRA contribution to a traditional IRA rather than a Roth account, as they had planned. By reducing their income, they qualified for a property-tax freeze for seniors in Illinois, saving more than $1,000 and likely reducing future increases.

For other filers, a tax-deductible spousal contribution to a traditional IRA could increase the amount of investment income that qualifies for a 0% tax rate. In a few cases, it could even keep a couple out of a higher bracket for Irmaa, the income-based surcharges for Medicare Part B and D coverage. With these surcharges, even a dollar more of income can move taxpayers to a higher bracket.

There’s a downside, of course: Spousal IRA contributions are confusing and often have income limits. But they’re worth a look. Here are specifics.

Know the basics

The rules for these accounts are often the same as for other IRAs. For example, spousal contributions go into individually owned accounts.  

As with other IRAs, the taxpayer—in this case the couple—must have “earned” income from wages or self-employment at least equal to the total IRA contributions. Income from investments, Social Security, and pensions don’t count for this purpose.

Also as with other IRAs, the contribution limit is up to $6,500 for savers under 50 and $7,500 for older savers for 2023. For 2024, it’s $7,000 and $8,000, respectively.

Understand the differences

What’s distinctive is that if a married couple files a joint return, the IRA contributions can be based on the couple’s joint earnings. That can permit the higher earner’s income to fund the IRA for the lower earner.

Say Stacey and Dana are married and both are age 61. Stacey earns $100,000 in wages while Dana has retired and earns $4,000 from consulting. The couple likely can put up to $7,500 in a traditional or Roth IRA for Stacey in 2023 another $7,500 for Dana. It makes no difference which of them writes the check for the spousal contribution to Dana’s IRA.  

Be aware of income limits

These can be hairy, so start with the easiest: For 2023, spouses can make full or partial contributions to Roth IRAs if the couple’s modified adjusted gross income is under $228,000. For 2024, that rises to $240,000.

Next are income limits for tax-deductible contributions to traditional IRAs. The first question is whether either spouse “actively participates” in a workplace retirement plan like a 401(k).

If neither participates, there are no income limits for deducting the spousal contribution. If either spouse participates in a workplace retirement plan, then the IRA deduction phases out for each partner—but at different levels of the couple’s income.

For a spouse who doesn’t participate married to someone who does, deductibility ends at $228,000 of income for 2023 and $240,000 for 2024. For the active participant, the deduction phases out at $136,000 for 2023 and $143,000 for 2024. 

If both spouses actively participate in a retirement plan, then both are subject to the phase-out ending at $136,000 for 2023 and $143,000 for 2024.    

Note: Many savers can make nondeductible contributions to IRAs up to the annual limit, but advisers often discourage them for owners of large traditional IRAs due to record-keeping burdens. 

Understand workplace coverage if you want a deduction

Workplace plans include 401(k)s and similar accounts as well as Solo 401(k)s, SEP IRAs and SIMPLE IRAs, according to Sarah Brenner, an attorney with Ed Slott & Co.

An active participant in such a plan is someone who has made a contribution to it for the year or had one made on his or her behalf, Brenner adds. For example, if a saver has a SEP IRA that hasn’t received contributions for several years, that doesn’t trigger income limits. 

Beware of QCD interactions, but not RMD interactions

For savers age 70 ½ and older making Qualified Charitable Distributions, or QCDs, from their traditional IRAs to favorite charities, Brenner has a word of warning.

It’s that QCDs and tax-deductible IRA contributions don’t mix well if done by the same person, because the IRA deduction cuts the benefits of the QCDs. However, this interaction won’t occur if one spouse makes the QCDs and the other takes the tax-deductible IRA contribution. 

There is good news for older IRA owners who are still working as well as taking the required withdrawals known as RMDs. Taking RMDs doesn’t affect a saver’s ability to make a spousal IRA contribution, although such payouts could raise income enough to make the contribution nondeductible.

Write to Laura Saunders at Laura.Saunders@wsj.com

David M. Brenner profile photo

David M. Brenner, ChFC®, CLU®

D. M. Brenner, Inc.
Phone : (858) 345-1001
Schedule a Meeting