What is the MAGI limit traditional IRA deduct-ability for married filing jointly when only one spouse had a retirement plan for part of the year?

[clm-sat]

Facts: Only Spouse had income from work. My income was from pension and investments including RMD from a traditional IRA.  Turbo Tax suggested after doing it's review that taxes could be reduced if spouse contributed $6,500 to a traditional IRA..  Spouse did so and now Turbo Tax says our joint MAGI is too high to deduct the contribution.  In the help it indicates the MAGI limit is higher when only one spouse had a retirement plan at work., but it does not say what the increased limit is.  What is the limit in this fact situation?  Having already contributed $6,500 to a traditional IRA - if the amount is nondeductible would it be better to convert that $6500 to a Roth IRA?

[DanaB · Accepted solution]

Please see the following for the MAGI limits:

• IRA Deduction if You ARE Covered by a Retirement Plan at Work - 2018
• IRA Deduction if You Are NOT Covered by a Retirement Plan at Work - 2018 (deduction is limited only if your spouse IS covered by a retirement plan)

Yes, if it is nondeductible it would be better to convert the amount to a Roth IRA to avoid the hassle to keep track of nondeductible contributions in your traditional IRA. 

[clm-sat]

I am mot covered by a retirement plan at work but my spouse was, so looking at the second link it appears the limit should be $199,000 instead of the 121,000 that TT is imposing.  Am I reading this correctly?  If so, how do I override the TT limit of 121,00?

[DanaB]

You mentioned that your spouse made the contribution and if she was the one with the retirement plan then you will have to look at the first link and the limit would be $121,000.

[clm-sat]

One more question a a follow up.  I understand my spouse may convert to a Roth with the 5 year holding period or continue with a non deductible Traditional IRA.  What are the tax implications if she cancels the IRA before filing the tax return for the year?

[DanaB]

If you spouse had deductible contributions to the trad. IRA then a conversion will result that the amount is included in your taxable income. Since usually when you receive distributions form a trad. IRA it will be included in your taxable income. With the Roth qualified distributions are tax free. Therefore a conversion of deductible contributions will result having to pay taxes on the whole amount that year.

[iOne]

For 2022 see
https://www.irs.gov/publications/p590a

Modified AGI limit for certain married individuals.

If you are married and your spouse is covered by a retirement plan at work and you aren’t, and you live with your spouse or file a joint return, your deduction is phased out if your modified AGI is more than $204,000 (up from $198,000 for 2021) but less than $214,000 (up from $208,000 for 2021). If your modified AGI is $214,000 or more, you can’t take a deduction for contributions to a traditional IRA.