Spousal IRA Phase-Out Limits
A spousal IRA can be a big tax benefit for a married couple. It allows contributions to Individual Retirement Accounts for both spouses, even if only one works, as long as there is enough income to cover the contributions. The couple must file a joint tax return, but the IRAs are separate. Contributions to a traditional IRA are deductible from taxable income, but there are income limits on deductions.
Income limits for tax deductions depend on whether either spouse is covered by another retirement plan at work. Individual contributions to an IRA are limited as of 2013 to $5,500 each -- that is, for both a working and a nonworking spouse. That increases to $6,500 each if a spouse with the lower compensation is 50 or older, meaning a total of $13,000 a year in deductible contributions to the two IRAs.
Couples with joint incomes under $178,000 and a spouse not covered by a retirement plan get full deductions for IRA contributions, while those with incomes over $188,000 are allowed no deductions, starting in 2013. Those figures for the 2012 tax year are $173,000 and $183,000. Incomes in between are in a "phase out" range, in which deductions are still allowed, but at a reduced rate.
The phase-out limits change if one spouse is covered by a retirement plan at work. A spouse covered by a retirement plan at work starts a phase-out at $95,000 and the deduction top limit is $115,000. The nonworking spouse, however, is still entitled to a full deduction up to the combined income limit of $188,000. If both spouses work and are covered by retirement plans, the lower phase-out limit affects both IRAs.
The phase-out is a sliding scale for the amount of IRA contributions a taxpayer may deduct from income. Contributions can exceed these limits, but tax deductions will be restricted. Phase-outs are calculated on an Internal Revenue Service formula based on a couple's adjusted gross income and whether spouses are covered by retirement plans at work.
Bob Haring has been a news writer and editor for more than 50 years, mostly with the Associated Press and then as executive editor of the Tulsa, Okla. "World." Since retiring he has written freelance stories and a weekly computer security column. Haring holds a Bachelor of Journalism from the University of Missouri.