08 Feb IRA strategies for a military wife
Q. I have both a traditional and spousal Roth IRA. My husband is in the military. When he is deployed in a combat zone, his income is tax-free so I contribute to my Roth IRA, but when he is home I contribute to my traditional IRA for the deduction. Is this the right thing to do?
A. It does sound like you’re doing the right thing.
As you implied in your question, contributions to Roth IRAs are not deductible, said Claire Toth, a certified financial planner with Point View Wealth Management in Summit.
As is the case with every IRA, the Roth account grows tax-free, while qualified withdrawals from a Roth IRA are totally tax-free, she said. Plus, with the Roth, there are no Required Minimum Distributions (RMDs).
Roth contributions require earned income, and although combat zone pay is tax-free, it still counts as earned income for this purpose, Toth said.
“Years with combat zone pay are likely years in which the couple has a very low tax bill,” she said. “Deductions are worth less, and a Roth contribution is ideal.”
She said when your husband is stateside, all of his pay is taxable, so you can make a deductible spousal IRA contribution if you’re not covered by your own workplace retirement plan, your husband is, and your income is $193,000 or less.
The IRA deduction reduces the couple’s tax bill now. Money in the IRA grows tax-free,” she said. “When the reader withdraws the money to fund retirement, the withdrawal is taxed as ordinary income. Presumably the couple is in a lower tax bracket then.”
For 2019, you can contribute $6,000 to either kind of IRA, with an additional $1,000 catch-up contribution if you’re age 50 or older.
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