Socking money away in a retirement account with tax advantages is one of the best ways to save for retirement. If you have access to a retirement plan like a 401k through work, you can count yourself lucky, but people without work-offered plans can still rustle up some tax benefits for saving by opening individual retirement accounts. Your wife can open an IRA even if she doesn't work, but contributions to the plan may not be tax deductible if you have access to a retirement plan through your employer.
Contributions to IRAs are normally reserved for individuals with earned income, but an exception applies to married taxpayers filing joint tax returns. The IRS says that you and your spouse can both make IRA contributions even if only one of you has taxable compensation. The amount of your combined IRA contributions can't exceed the income on your joint tax return. If you didn't participate in a retirement plan through your employer, all of the IRA contributions you and your wife make are tax deductible if you file a joint tax return.
Limitations on Deductions
If you are covered by a retirement plan at work, the IRA contributions you and your wife make might not be tax deductible if you have high income. According to the IRS at the time of publication, you can't deduct IRA contributions if you make $112,000 or more in a year and you have a retirement plan through your employer. If your wife doesn't work and you have a retirement plan through your employer, she cannot deduct her IRA contributions if your adjusted gross income is $183,000 or more.
Roth IRAs are an alternative to traditional IRAs in which contributions are not tax deductible, but you don't pay income taxes when you withdraw your money during retirement. Both you and your spouse can contribute up to $5,000 a year to a Roth IRA if your annual income is less than $173,000. Being covered by a retirement plan at work has no effect on Roth IRA contributions.
Filing Separate Returns
While many married couples file joint tax returns, the IRS gives you the option of filing separate returns. If you file separate returns and your wife has no income, she can't deduct IRA contributions. Even if she does have income, IRA contributions are severely limited for separate filers: you can only deduct IRA contributions as a separate filer if your annual income is under $10,000. Filing a joint return is preferable if you want to maximize IRA contributions.
- IRS: Publication 590
- CNN Money: Who Can Contribute to a Traditional IRA?
- IRS: Amount of Roth IRA Contributions That You Can Make for 2012
- IRS: Retirement Topics - IRA Contribution Limits
- IRS: Effect of Modified AGI on Deductible Contributions If You ARE Covered by a Retirement Plan at Work
- IRS: Effect of Modified AGI on Deductible Contributions if You are NOT Covered by a Retirement Plan at Work