Written by Alex Seleznev, MBA, CFP®, CFA | May 1, 2024
Are you looking to minimize your taxes and/or need to catch up on your retirement contributions?
If you are married with only one spouse earning income, you can still make a potentially tax-deductible contribution for your spouse.
This approach can help you save thousands in taxes in both the short and long term.
What are some of the examples of when this strategy can be helpful?
This approach can be helpful when one spouse works while the other is fully retired, or when one of them takes care of family members.
What are your potential tax savings?
The answer depends on your overall tax situation. In general, your tax savings are approximately 25% of the deductible amount.
In 2024, the maximum IRA contribution is $7,000 (or $8,000 for those aged 50 or over).
Your tax savings are estimated to be about $1,750 to $2,000 per year on average.
What if you cannot deduct the contribution?
You should still consider making a contribution even if your income is too high for it to be tax-deductible.
There is a possibility that you will be able to convert the non-deductible IRA contribution into a Roth IRA tax-free, either in the current year or in the future!
Even without the conversion, the funds will still grow tax-deferred until you need to take them out of your account.
Are there any age restrictions?
None. You can continue to contribute for as long as you have enough earned income.
This also applies to those who have reached their Required Minimum Distribution (RMD) age of 73 (for most people).
If implemented correctly over several years or even decades, the “spousal” IRA contributions strategy can save you thousands in taxes and help you catch up on your retirement goals!