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

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.

The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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