welch julie 16If your client is married and either that person or their spouse does not work, they may still be able to contribute to individual retirement accounts (IRAs). The annual maximum IRA contribution per person is $5,500 ($6,500 if you are 50+). The total contribution for a taxpayer and their spouse is the lesser of their combined earnings or $11,000. The maximum amount a taxpayer can put into each of their separate accounts is $5,500 ($6,500 if you are 50+).

Your client and their spouse file jointly and have an adjusted gross income of $50,000 for 2016: $500 from your client’s wages, $45,000 from the spouse’s wages and $4,500 from interest. The spouse may contribute $5,500 to an IRA and your client may contribute $5,500 to a spousal IRA.

With a Roth IRA, contributions are not deductible, but generally all money withdrawn from a Roth IRA is tax-free.

Your client may wish to contribute to a traditional IRA if he or she is ineligible to contribute to a Roth IRA due to the income limitations or if they want to deduct their IRA contribution. If a taxpayer is in the 28% tax rate bracket and makes a $5,500 deductible IRA contribution, the Federal tax savings is $1,540. The state tax is also reduced.

If a taxpayer is not eligible to make a Roth IRA contribution or a deductible IRA contribution, a nondeductible IRA contribution can still be made as long as the taxpayer or their spouse has earned income and is under age 70 ½ as of the end of the year for which the contribution is made. In some cases, depending on the taxpayer’s current and estimated future tax rate brackets, he or she may choose to make nondeductible IRA contributions rather than Roth or deductible IRA contributions. Also, once a traditional IRA contribution is made, it can be converted to a Roth IRA.

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