Spousal IRA eligibility

[Guest Hickory6]

Hello everyone--

One of our readers wrote in with this question:

Joe six pack works for a living. He makes 75k per year and contributes to his 401k, and maxes a Roth IRA for himself.

Joe's wife is a new real estate sales person, who only made about $6 in commissions last year. But her expenses exceeded her income.

Question: Can she contribute to a Roth IRA for herself?

Since she's working, does she qualify for a spousal IRA? Can she open a spousal Roth IRA?

Suppose Joe Six Pack is going to inherit a couple of hundred grand. Does that windfall count against the limitations on AGI for the purposes of determining eligibility?

Comments, concerns, and caveats?

Jason Van Steenwyk

Reporter, Mutual Funds Magazine

[BPickerCPA]

As long as joint adjusted gross income is under $150K, both spouses can contribute to a Roth IRA since compensation exceeds the total IRA contribution. Inheritance is irrelevant, since that does not count as income.

[John G]

Barry, I wonder if this guy is testing the validity of online advice?

Jason, You could do some great investigative reporting on horrrible technical/financial advice on the web. You just won't find much of that here. The answer you got above came from the Barry Bonds of this message board.

John G

an aspiring Yogi Berra.

[mbozek]

There are some interesting questions about this client-- Inheriting 200k can make for some tricky planning issues e.g., if the funds are invested and return about 8% a year then Joe will have about 16k more in income. Depending on wife's age and tax bracket it may be better to invest in a tax deductible IRA .

Also the wife may be better off establishing a SEP or qualified plan in a future year if she is self employed as her taxable income increases since she can deduct 20% of her net income from self employment. Your client should consult a financial planner to review all of the options

[John G]

With no ages, current tax rate, state of residence, possible future tax rate, health expectations, etc. provided it is extremely difficult going beyond the basic question of IRA eligibility which has been answered. Real estate has a high washout percent because of the difficulty in getting income above expenses. You have to get over that hump before other options come in to play. Without knowing more about the existing taxable and sheltered assets, it would be very hard to know if any inheritance should be redeployed to generate income or towards investments that produce capital gains.

[mbozek]

My comment was directed precisely toward those issues and others that should be reveiwed with a financial planner or tax advisor. Being an advisor means asking questions that will raise the client's awareness of issues, not just answering the questions asked by the client.