Traditional IRA for retiree with no earned income (married filing jointly)

[lennar0719]

Turbo Tax is telling me I can take a $7000 traditional IRA and get a deduction (I have no income other than Social Security and investments).  I am retired (68) with no income.  My husband is not retired (62) and we file jointly.  I am not sure Turbo Tax is correct.  I did find one article that said I could still do the tradition IRA because we are filing jointly, but want to be sure.  I believe my husband maxed out his contribution with a Simple Plan.

[JulieS · Accepted solution]

Yes, you may be eligible to contribute to an IRA. 

The spouse of an employee can contribute to a retirement plan based on the employee's income, even if the employee is covered by a retirement plan at work. 

As long as you entered all of your taxable income on your tax return before accessing information about a spousal IRA, you can rely on the information TurboTax is providing. 

[lennar0719]

Thanks

Nadine

[Zoso7]

Hi Julie,

Can you elaborate on that for me so I know I didn't mess up? I've used TT for 25+ years, but this year I'm confused.

I file married filing jointly. I'm 64, work and have a covered defined contribution plan (401k). My wife is 68 and does not work. We both have individual Simple IRA's. My AGI for 2022 was close, but below the 198k limit. So TT suggested that my wife could make a 7k contribution to her IRA and claim the full deduction. So I did all of that, but then my CFP called me and said that was an illegal contribution to her IRA since she did not have any earned income.  Who is correct? Did I just mess up or can she make the contribution even though I'm the spouse with the earnings? To me it seems that this is legal from what TT suggested and what I'm reading on IRS.gov.

Thanks in advance!

[LindaS5247]

You are correct in that generally you can't contribute to an individual retirement account (IRA) unless you earn an income in a given tax year. 

The spousal IRA, however, is an exception to this rule.  It allows each spouse to contribute up to the maximum, if one of them earns an income.

A spousal IRA is a strategy that allows a working spouse to contribute to an individual retirement account (IRA) in the name of a non-working spouse with no income or very little income. This is the exception to the provision that an individual must have earned income to contribute to an IRA.

Click here for more information regarding spousal IRA's.

[Zoso7]

Hi Linda,

So did she need to have opened up a completely different IRA and call it "Spousal" or is it ok to fund her already in place simple IRA? The contribution technically was transferred from her brokerage account and went to her IRA and not from my personal account.

Thanks!

[PattiF]

She does not need to open a new IRA, but can fund the IRA that is already in place with her brokerage. 

@Zoso7 

[Zoso7]

Thanks so much to each of you, I might sleep better tonight.

Tim

[dmertz]

If her only existing traditional IRA is a SIMPLE IRA, she would have to open an different traditional (or Roth) IRA to make an IRA contribution.  SIMPLE IRAs are IRAs to which only an employer providing a SIMPLE IRA plan is permitted to make deposits of contributions.

[fanfare]

put your money in a self-directed Roth IRA.

then invest it.

You'll be happy you are not paying income tax on your retirement income from a Roth and your social security.

[Zoso7]

I was calling it "Simple", but just looked at her Form 5498 and hers is just a regular IRA.

Thx.