Q. My wife quit her job last September and started a self-employed business. She didn't contribute to her old employer’s 401(k) and doesn't have any other retirement plan. Can she contribute to a traditional IRA and deduct contributions? S.R., Sheboygan, Wis.
A. It depends. Clearly, your spouse is eligible to set up an IRA and contribute to it as long as she has earnings from the new business or other sources. The maximum contribution allowed is the lesser of the earnings or $5,500 ($6,500 if age 50 or older) for both the 2013 and 2014 tax years. However, assuming you’re an active participant in an employer retirement plan, deductions for IRA contributions by your spouse are reduced or eliminated if your modified adjusted gross income (MAGI) exceeds a certain level. For 2013, the phaseout range occurs between $178,000 and $188,000 of MAGI for joint filers increasing to a phaseout range of $181,000 to $191,000 of MAGI for 2014.
Tip: Your spouse might consider a Roth IRA instead. Although there are no deductions with a Roth, future distributions may be completely tax-free.
- Small Business Tax Deduction Strategies No matches