Spousal IRA Deductions & Social Security Benefits

There are all kinds of limits on IRA contributions. For example, you can't contribute more than $5,500 as of 2013 or more than $6,500 if you're over 49. If you or your spouse has a retirement plan at work, you may not be able to write off all of your contributions. Social Security benefits are one of the factors affecting how much you can deduct.

AGI Effect

Suppose you're married, filing jointly and covered by a 401(k) or other workplace plan. You can report a modified joint AGI of up to $95,000 (as of 2013) without affecting your traditional IRA deductions. Above $95,000, the deduction goes down until it disappears at $115,000. If it's your spouse who has the plan, your trigger numbers are $178,000 and $188,000. For other filing statuses, the cutoff points are lower, with married-but-separate returns getting the worst treatment.

Social Security

Use the IRS worksheets in Publication 590, Appendix B, to see if Social Security affects your IRA deduction. The instructions say you start by figuring your AGI for the year, then add half the Social Security benefits you received. Follow the rest of the directions on the worksheet to calculate your modified AGI and see if it's high enough to trigger the IRS deduction limits. If you can only write off, say, $3,000 in IRA deposits, you can still contribute the full $6,500. However, $3,500 of that is taxable.

Spousal IRA

An IRA owner earning less than $5,500 a year can only contribute as much as she earns. Spousal IRAs are a way around that. If, say, your spouse earns only $2,000, you can max out his account by contributing another $3,500, or $4,500 if he's old enough. That doesn't affect your contributions to your own IRA. The tax deduction limit is the same as for your IRA. You pick the trigger points for the account as if your spouse was the one contributing all of the money.

Roth IRAs

Everything you contribute to a Roth IRA is completely taxable. Instead, when you make withdrawals later, you get to enjoy them tax-free. Unlike a traditional IRA, a high AGI limits how much you can contribute to a Roth. As of 2013, you start feeling the limit when you reach a $178,000 modified AGI. If you're drawing Social Security, you again use the worksheets in Appendix B to figure your MAGI. If the result is over the IRS limit, you can't put the maximum in your Roth this year.