Can my wife and I, both retired, contribute to a traditional IRA if my combined pension and Social Security totals over $100,000 and we each have $40,000-$50,000 of earned income?

by Tami Noll Russo, CPA | Dec 27, 2018
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My wife and I both retired earlier this year. I have been receiving a pension for several years. My combined pension and Social Security are approximately $116,000. My earned income was approximately $40,000, and my wife's was approximately $50,000. Are we eligible to contribute to a traditional IRA?

It depends.

If both you and your spouse are under 70 ½, and neither are eligible for a retirement plan such as a 401(k) plan through your earned income, then you both may make a deductible IRA contribution of up to $6,500 each ($5,500 if someone is not yet 50). However, you may not make a deductible IRA contribution in the tax year you turn 70 ½. In this situation, other income has nothing to do with eligibility.

Now, let’s assume that both you and your spouse are covered under a retirement plan at work and neither of you have turned 70 ½ in 2018. Then, you may take a full deduction for an IRA contribution if your modified adjusted gross income (AGI) is under $101,000. A phase out occurs between modified AGI of $101,000 and $121,000. No deduction will be available with modified AGI over $121,000. Regardless, from the numbers provided above, you are already exceeding these limits. Accordingly, a deductible IRA would not be available to either of you in this example.

For a final assumption, let’s say one spouse is covered by a retirement plan and the noncovered spouse hasn't turned 70 ½ in 2018. Then, a deduction is phased out if your modified AGI is more than $189,000 but less than $199,000. If your modified AGI is $199,000 or more, you can’t take a deduction for contributions to a traditional IRA. It looks like your income exceeds these thresholds also, and would preclude your contribution.

Perhaps one of these scenarios matches yours. You may need to consult a CPA if there are details to your situation that were not covered above.

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

Answered by: Tami Noll Russo, CPA, is a certified financial planner with Noll Financial Services in Middletown, Pa.

Disclaimer
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