spousal roth ira contribution limit

[Guest leclark]

2003 publication 590 beginning on p. 55 states "you can contribute to a roth ira for your spouse provided the contributions satisfy the spousal ira limit and your modified agi is less than 110,000 for married filing separately and you did not live with your spouse at any time during the year"

using the above facts and putting a 3000 roth contribution on the return of the spouse with no compensation using turbotax results in 180 excess contribution tax.

hrblock does the same thing.

who is right?

[Appleby]

2003 publication 590 beginning on p. 55 states "you can contribute to a roth ira for your spouse provided the contributions satisfy the spousal ira limit and your modified agi is less than 110,000 for married filing separately and you did not live with your spouse at any time during the year"

using the above facts and putting a 3000 roth contribution on the return of the spouse with no compensation using turbotax results in 180 excess contribution tax.

hrblock does the same thing.

who is right?

Hi clark

IRS Publication 590 appears to require some rewording.

According to IRC 219(c ) , the couple must file a joint return in order for one spouse to make a ‘spousal IRA contribution’ on behalf of the other spouse…

For a married couple filing jointly, the phase-out is $150,000 - $160,000. This means that if your MAGI is less than $150,000, and you file as ‘married filing jointly’, then you and your spouse may each contribute the maximum amount.

If you file as ‘married filing separately’, the phase-out range is $-0- to $10,000. However, if you did not live with your spouse at anytime during the year, for the purpose of IRA contributions you are treated as single. Which means your phase -out limit would be $95,000 - $110,000---and it also means that you may not contribute for your spouse-techincally...As your spouse should be filing his/her own return

[Appleby]

Regarding the software calculation---For an individual who is filing as single with a MAGI of $109,100, the contribution limit is $2,820. Contributing $3,000 would result in an excess of $180….

[JAMES PATRICK]

I see it as a valid contribution of $180 and an excess of $2820.

[Appleby]

You’re right Jim---the income MAGI would be $95,100 to be eligible for a contribution of $2,820.

leclark clarified that the $180 mentioned relates to an excess contribution tax--- not an excess contribution amount.

leclark—I assume this means that the software is in effect stating that the amount you are indicating for your spouse is an excess contribution, which is subject to a 6% penalty ($3,000 x 6%= $180)* if the excess is not removed from the Roth IRA by tax filing deadline , including extensions ( or until October 15 if the tax return is filed by tax filing date). This supports the explanation above, which is, if you are ‘married filing separately’, you are not eligible to make a ‘spousal IRA contribution’…

*The penalty applies for each year the excess remains in the IRA…

You may also refer to treas reg 1.408A-3 Q&A 3 regarding -- a married individual who has lived apart from his or her spouse for the entire taxable year ….this states that such an individual is treated as not married

Regarding the statement in Pub 590…In instances where an IRS publication , such as publication 590 contradicts the Code or treasury regularly, the Code or treasury regulation is the overriding authority .

[Guest leclark]

408A-3 q3a3 only applies to the agi limit for married filing separately living apart. this is entirely in agreement with the quote from publication 590, which continues to allow a spousal contribution. 219c applies to the deductibility of a regular ira contribution and in any case would only bar a spousal contribution if it said"if and only if married filing jointly". because of this ambiguity, publication 590 may be read as resolving the ambiguity, ie allowing a spousal contribution for the case of married filing separately living apart.

[Appleby]

219© (1) addresses the ability of one spouse to make a spousal IRA contribution for the other spouse. 219© provides that the spouse making the spousal IRA contribution must have sufficient compensation.

219©(2) goes on to clarify that in order for the one spouse to make a spousal IRA contribution for the other spouse,

such individual must file a joint return for the taxable year

This shows that a joint return must be filed in order for one spouse to make a spousal IRA contribution on behalf of the other spouse.

Code Section 408A provides that

Except as provided… a Roth IRA shall be treated for purposes of this title in the same manner as an individual retirement plan

Code Section 408A©(2) provides that

The aggregate amount of contribution for any taxable year to all Roth IRAs maintained for the benefit of any individual shall not exceed the excess ( if any) of :

(A) the maximum amount allowable as a deduction under section 219 with respect to such individual for such taxable year ( computed without regard to subsection (d)(1) or (g)

….here, it is clear that the intention is to include 219(c ) in the application to Roth IRAs.

1.408 states

A-3. (a) The maximum aggregate amount that an individual is eligible to contribute to all his or her Roth IRAs as a regular contribution for a taxable year is the same as the maximum for traditional IRAs: $2,000 or, if less, that individual's compensation for the year.

(b) For Roth IRAs, the maximum amount described in paragraph (a) of this A-3 is phased out between certain levels of modified AGI. For an individual who is not married, the dollar amount is phased out ratably between modified AGI of $95,000 and $110,000; for a married individual filing a joint return, between modified AGI of $150,000 and $160,000; and for a married individual filing separately, between modified AGI of $0 and $10,000. For this purpose, a married individual who has lived apart from his or her spouse for the entire taxable year and who files separately is treated as not married.

The last sentence is merely clarifying that if you are married and file separately, then it is not the $0 and $10,000 that applies to you…instead the 95,000 and $110,000 applies to you…because for this purpose, you may treat yourself as not married…If you are not married, you are treated as not having a spouse. It follows then that if you do not have a spouse, you cannot make a spousal IRA contribution, as a spousal IRA contribution can only be made by a married individual who files a joint return.

See also Q-4 of 1.408A-3.

How is compensation defined for purposes of the Roth IRA contribution limit?

A-4. For purposes of the contribution limit described in A-3 of this section, an individual's compensation is the same as that used to determine the maximum contribution an individual can make to a traditional IRA. ... In addition, under section 219©, a married individual filing a joint return is permitted to make an IRA contribution by treating his or her spouse's higher compensation as his or her own...

I have written to the IRS requesting that they review the language in Publication 590.

[Guest leclark]

where are you getting your 219c? all the versions i have seen say quote"such individual files a joint return for the taxable year"

[Guest leclark]

and how do you "write the irs" and reach anybody who will do a conscientious job?

[Appleby]

You are right. The exact verbiage is “such individual files a joint return for the taxable year”…However, this does not change the intention or interpretation.

From my experience, the IRS has been reliable at addressing matters such as these, albeit a little tardy in the response. But I assume they have more pressing matters to deal with, especially at this time of year...so I don’t mind waiting for awhile. I will let you know as soon as I receive a response

[Appleby]

leclark,

The IRS has updated Publication 590 to reflect the correct amount and deleting the sentence you quoted above. Yes, they were tardy, which as I said before, is expected at this time of year… but in the interim I received four calls from them in response to my letter… incidentally, three of the responses said the publication was right ( as it was in your quote) and one said it was in fact incorrect and that it would be changed as soon as possible. The change has been made.

The new version is at http://www.irs.gov/pub/irs-pdf/p590.pdf