Government 457 and Roth IRA

[Guest HenryFinkle]

I have a government sponsored 457. I also have a Roth IRA I opened myself last year. I make $50,000 per year and my wife does not work.

Can I contribute $6,000 to the Roth IRA (My $3,000 and Her $3,000 allowance) or does she need to open a Roth as well?

If I open a Roth IRA for her, can her Roth contributions be deducted on our taxes since she is not working?

Thank you.

[John G]

The I in IRA stands for Individual. IRA accounts carry only one name, so you would need two different IRA accounts.

Roth IRAs have great tax shelter features, but deductability is not one of them. Instead you eventually get flows out of the Roth without tax liability, and no mandatory distributions. Your wife can qualify based upon your earned income. I assume that you file a married filing jointly return.

[Guest HenryFinkle]

Thanks for the information!

Also, I heard it was best to contribute enough to my 457 to the point that my employer will match, and then invest in a Roth. Once the Roth has reached the max, then work towards the 457 max.

Any thoughts?

[John G]

I am not very familiar with 457 programs, but matches in other programs like 401k are often 50% or 100%, so my general rule of thumb is that you want to maximize any account with a high match. That gives you an immediate high return in the first year.

Then for most people, the Roth would be second best choice... as I assume long periods of growth to significant assets, that successful people often have high tax brackets in retirement and tax rates in general are not shifting lower. You can ever know exactly which plan or approach is optimal as so much changes over time... tax rates, health, longevity, job status, etc. A blend stategy might give you the best answer.

Other factors that may influence how you balance things out include: current credit card debt (high debt families might be better served by retiring debt), restrictions on investment choices (eg. if company stock was all you could invest in and your company was weak, it would be a bad idea to go for the match), who has the account (spousal balancing is often desireable), and perhaps other obscure issues such as control over the account or access after retirement.

[Guest franky]

Henry, you asked about deduction for your spouse. Although Roth IRA is never deductible, your wife may qualifiy for Traditional IRA deduction if your combined AGI is less than $150,000. She can have $3,000 Traditional ($3,500 if age 50+) while you have Roth IRA.