Are you contemplating the Great Resignation, or perhaps you’ve already joined its ranks? Maybe you’re a stay-at-home parent. Regardless of your reasons, taking a break from work is a big decision. It’s important to think about how it will affect your finances down the road, like your retirement savings and taxes. As your dental CPA experts, we’re here to advise you about some details you might have skipped.
As the tax season deadline approaches, one often overlooked avenue for retirement savings is the spousal IRA, designed specifically for non-working spouses. By contributing to a spousal IRA, both partners can enjoy tax-deferred growth and potentially boost their retirement savings. Plus, it’s a smart way to ensure a secure financial future for both of you.
If you did not know about this rule, in this blog post we’ll guide you through all the complexities of retirement savings and taxation. After reading this article, you’ll feel confident and informed to make decisions to take care of your financial well-being.
Non-Working Spouse: Traditional Spousal IRA Contributions
For the 2023 tax year, if you’re a non-working spouse, you can contribute up to $6,000 (or $7,000 if you’re 50 or older) to a traditional spousal IRA in your name. To make a traditional spousal IRA contribution, you and your spouse need to file a joint Form 1040. You must also have earned income, typically from your working spouse, that is equal to or greater than the sum of both your contributions. Just be aware that taxable alimony received before 2019 in a divorce agreement is considered earned income for IRA contribution eligibility.
However, there’s a catch. If your working spouse is covered by a tax-favored retirement plan, such as a 401(k) or pension, the deductibility of your traditional spousal IRA contribution may be phased out based on your joint adjusted gross income (AGI). This phase-out occurs between a joint AGI of $204,000 and $214,000 for the 2023 tax year.
The adjusted gross income (AGI) is the total income and gains minus certain deductions. Some of these deductions include:
- contributions to a self-employed SEP, SIMPLE, or other self-employed retirement plan;
- 50 percent of self-employment tax;
- self-employed health insurance premiums;
- health savings
- account (HSA);
- alimony payments required by a pre-2019 divorce agreement;
- the deduction for up to $250 of unreimbursed expenses for K-12 educators; and the deduction for moving expenses for eligible members of the Armed Forces
Working Spouse: Traditional IRA Contributions
If you and your spouse don’t have a retirement plan through your jobs or self-employment, don’t worry. Your working spouse can contribute up to $6,000 (or $7,000 if they’re 50 or older) to a traditional IRA in their name for the 2023 tax year. The best part? This contribution is tax-deductible, no matter your joint income level.
Also, you as a non-working spouse can contribute to a traditional spousal IRA in your name. The contribution is deductible and subject to the same limits as a working spouse’s IRA. Just keep in mind that both you and your spouse must have enough earned income together to match the combined amount of your contributions and that all the required earned income can come from your working spouse. And don’t forget that alimony from a pre-2019 divorce agreement counts as earned income for IRA contribution eligibility.
On the other hand, if your spouse who works has a retirement plan with tax benefits, they can only make a deductible traditional IRA contribution for the 2023 tax year if your joint annual income is between $109,000 and $129,000.
We know that understanding the rules surrounding spousal IRA contributions can be tricky, particularly when considering your spouse’s employment status and retirement plan coverage. That’s where our expertise comes in handy. We’re here to help you navigate these complexities and maximize your retirement savings while minimizing your tax liabilities. If you’re unsure about your eligibility for IRA contributions or need clarification on the rules, don’t hesitate to reach out to us.
Expert Guidance for Tax Season
As the end of tax season approaches and the deadline looms, it’s essential to consider your retirement savings strategy as a non-working spouse. We’re here to help dentists with personalized guidance and support, so they can make informed decisions that align with their practice’s goals. Don’t let tax season pass you by without maximizing your retirement savings potential. Reach out to us today, and let’s secure your financial future together.
