Traditional IRA contribution-Retired

[KHTCHR]

Hello-

I retired in July 2022.  I had full time employment up until that period. I am now working part time, with very little pay, as I have a decent pension. Can I contribute the full amount to a traditional IRA for 2022?  I realize that in 2023, this will be limited based on my income amount.  My husband is currently full time employed, so I wasn't sure if spousal contribution could be factored in or not.  

Thanks.

[AmyC]

1. You can contribute the full amount to a traditional IRA. The question is can you deduct the IRA on your taxes. If you were covered by a retirement plan at work this year, you are subject to income limitations. MFJ phases out when MAGI is $109,000 to $129,000. See IRA deduction limits for more.

2. For 2023, if you do not make enough to contribute, your spouse can contribute the funds. Since you do not have a retirement plan, there is no limitation. A spousal contribution does not bring you under his work retirement plan so you are still considered not covered. See Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs)

[ckw-jw51]

Good morning all - 

My husband retired in December 2022 he did contribute to a 403(b) retirement plan.  I retired in 2021 and no income for me except my social security.  When doing our taxes this year using turbo tax it said that we can contribute to our traditional ira's this year and get credit for doing so.  In the past we have not been able to do so, I am assuming that we were over the limits.  Can someone confirm if this is correct, please.

Thanks,

ckw-jw51

[MayaD]

Since your husband was covered by a retirement plan at work, you can:

• Take a full deduction up to the amount of your contribution limit if your Modified AGI is $109000 or less.
• Take partial deduction if Modified AGI is more than $109,000 but less than $129,000
• No deduction if Modified AGI   $129,000 or more

[ckw-jw51]

Thank you for the information – I continued to do research as our Modified AGI is a little over the 129,000 as you noted and the Turbo Tax was still allowing us to make a contribution to my IRA and get a deduction.  I found the following information on the Turbo Tax Learn More section and the IRS website. Below are just snippets of what I found.

 The Turbo Tax Learn More said –

Eligibility Requirements – you or your spouse, if filing a joint return, must have earned income, such as wage, salary, or self employment earnings.

Limitations of the IRA contribution – You can contribute a max 6,000 or 7,000 if age 50 or older. If you’re married filing jointly you can each contribute the maximum, even if only one of you works, as long as your combined compensation is at least 12,000- 13,000 if only one of you is age 50 or older and 14,000 if both of you are.

Limitation of the IRA deduction – If you or your spouse, if filing joint return and are covered by a retirement plan at work, you might be able to deduct all of your contribution, only part of it, or none of it, depending on your modified adjusted gross income (MAGI) and your filing status.

If you are not covered by a retirement plan at work but your spouse is, here are the income limits:

If you are married filing jointly: You can deduct all of your IRA contribution if your modified adjusted gross income (MAGI) is 204,000 or less.

 Here what the IRS website said

2022 IRA contribution and deduction limits effect of Modified AGI on Deductible Contribution if you are NOT covered by a Retirement Plan at Work. I found - If your filing status is – “Married filing jointly with a spouse who is covered by a plan at work” and your Modified AGI is “204,000 or less” – Then you can take “a full deduction up to the amount of your contribution limit”.

Again thank you for information you provided which made me dig deeper trying to understand so that I would understand it. 

[ErnieS0]

Yes. You are correct. Because you are not covered by a retirement plan, the higher income limits apply, and you can contribute the full amount to a spousal IRA.

[ckw-jw51]

Sorry one last question - or comment.  In the reply you mentioned that I could contribute to a spousal IRA - wouldn't I want to contribute to my IRA ? 

Thanks

[RobertB4444]

You can do both, actually, since neither of you is covered by a plan at work.

@ckw-jw51 

[ckw-jw51]

Thank you for your response, I may have not made myself clear when asking the question or comments.

What I was trying to understand was this comment from ErnieS0

“Yes. You are correct. Because you are not covered by a retirement plan, the higher income limits apply, and you can contribute the full amount to a spousal IRA.” 

Just didn’t understand or think that I can contribute to a spousal IRA.

 My spouse was covered by a retirement plan with their job.  I retired over a year ago and am not covered by a retirement plan.  It is my understanding that I can contribute to my Traditional IRA and take a deduction because we are filing jointly and spouse was covered by plan at work and our MAGI is 204,000 or less.

Sorry for being confused, just trying to understand everything correctly.

ckw-jw51

[AmyC]

You would qualify for a full deduction up to your contribution limit. In your case, there would need to be enough income to cover your IRA.

IRS | IRA contribution limits: Spousal IRAs

If you file a joint return, you may be able to contribute to an IRA even if you didn’t have taxable compensation as long as your spouse did. Each spouse can make a contribution up to the current limit; however, the total of your combined contributions can’t be more than the taxable compensation reported on your joint return. See the Kay Bailey Hutchison Spousal IRA Limit in Publication 590-A.

If neither spouse participated in a retirement plan at work, all of your contributions will be deductible.

See also Deducting your IRA contribution 2022

• IRA Deduction if You ARE Covered by a Retirement Plan at Work - 2022
• IRA Deduction if You Are NOT Covered by a Retirement Plan at Work - 2022 (deduction is limited only if your spouse IS covered by a retirement plan)

Reference:  Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs)

[ckw-jw51]

Thank you for your response - will continue on with the Turbotax Premier 2022.

[h091320]

I am retired. I receive monthly retirement payments from a pension plan from another company where I used to work. years ago.

I received a final long term bonus from the company I retired from this year paid as w2 compensation. I am no longer part of their 401k program.

I have some personal income now after retirement and I would like to make an IRA contribution. Can I make deductible IRA contribution?

[h091320]

Thank you. The key question is what constitutes being covered by a pension plan? I'm getting no contributions into a plan on my behalf but I am getting retirement benefits

[Opus 17]

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@h091320 wrote:

I am retired. I receive monthly retirement payments from a pension plan from another company where I used to work. years ago.

I received a final long term bonus from the company I retired from this year paid as w2 compensation. I am no longer part of their 401k program.

I have some personal income now after retirement and I would like to make an IRA contribution. Can I make deductible IRA contribution?

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You can contribute to an IRA up to the amount of compensation (payment for work performed) that you report on your tax return.  Compensation is W-2 box 1 wages (minus box 11 payments) and Schedule C net self-employment income minus half your SE tax.

If you have a W-2 for 2022 that shows compensation for work performed (that may include the bonus) then you can make a 2022 IRA contribution up to the amount of the compensation, or up to $7000 (if you are over age 50), whichever is less.

You can make a contribution in 2023 and designate it as a 2022 contribution if you make it before April 18 and you tell the bank in advance that it is a 2022 contribution and not 2023.

Then, whether or not you can make a 2023 contribution will depend on if you have compensation from working in 2023.