Financial Advice Q&A

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How much can we save for retirement for my stay-at-home spouse?
[ Edited ]

How much can I put into my wife's 401K? I am a Federal civilian employee, she is a stay-at-home mom, we file taxes jointly. We put the maximum ($17,500/year) into TSP. She also has both a 401K and Roth IRA from previous employment as a teacher, and right now we put $50/month into the 401K. We want to increase the contributions to her retirement accounts but the tax rules are pretty confusing and I don't want to run afoul of them. Can anyone help clear this up?

Posted: 2014-01-05 06:57 AM
Other Answers: 1
Community Manager
Posts: 1,009

Happy to clear this up for you…or at least try to! :)


Important clarification
First, let’s take a look at the retirement saving you mentioned you’ve been doing for your wife. Though you said you’ve been making contributions to her old 401(k), I’m guessing that’s not completely accurate. Contributions to those accounts can only be made via payroll deduction; meaning that if you’re still making contributions to this pool of funds, you must have rolled them into an IRA for your wife.  I’m guessing this is what you did?


On a similar note, you also mentioned that your wife had a Roth IRA from her previous employment as a teacher. Just to be clear, though she may have funded a Roth IRA with money she made teaching, the Roth IRA itself has no other connection to her employment from a tax rules perspective. It’s essentially a stand-alone retirement account.


Put all of this together and it essentially means that if you want to increase your wife’s retirement savings, you should be looking at IRAs, not employer-provided plans. So let’s focus on them.


Limits, limits, and more limits
Even though your wife has no taxable compensation of her own, she’s still potentially eligible to make IRA contributions. As joint filers, the IRS allows IRA contributions to be made based on your total household income, not just that specific to each spouse.


IRS Publication 590 has all the details but at a high level, if your wife is under age 50 the maximum IRA contribution she can make for tax year 2013 (which can be made until April 15, 2014), is $5,500. I say “at a high level” because it’s actually a little more complicated than this but generally speaking, this is the limit. The limit stays the same for 2014. Also, it’s important to understand that this limit is the total IRA contribution limit across both traditional and Roth IRAs for an individual.  She can’t contribute $5,500 into each.


Next, even if you have the necessary household taxable compensation, you should know that there are some additional eligibility restrictions for each type of IRA. 


For Roth IRAs, there is an upper income threshold that, if exceeded, could limit or altogether eliminate your Roth IRA contribution eligibility.  For tax year 2013, a taxpayer married filing jointly can make a full contribution if their household modified adjusted gross income is below $178,000. For income of $178,000-$188,000 the maximum contribution is phased out and no contribution is allowed if income exceeds $188,000. So bottom line, if you make too much, Roth IRA contributions won’t be an option.


Having said that, a traditional IRA might still be in play. Unlike Roth IRAs, traditional IRAs don’t have an upper income eligibility cap for contributions.  Where the cap comes into play for traditional IRAs is in regard to your ability to deduct the contributions you make.  Here again the same 2013 tax year phaseout range of $178,000-$188,000 applies. Make more than $188,000 and contributions will still be allowed but you won’t be able to deduct them. Make less than $178,000 and your entire contribution could be deductible.


In 2014 both of these phaseout ranges increase to $181,000-$191,000.


Get specific tax assistance
Finally, I realize this topic is anything but simple and we haven’t even touched on how to pick one type of IRA over another. Consequently, even if what I’ve shared here is successful in clearing up your questions, I highly encourage you to contact a CPA or other qualified income tax advisor about your specific situation before you take any actions. It’s typically better to spend a little money to get specific guidance than make a mistake that lands you in hot water with the IRS.


Thanks so much for your question.  I hope this helps and I wish you all the best!



Posted: 2014-01-06 12:07 PM


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