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?
— Wife

A. It does sound like you’re doing the right thing.

Here’s why.

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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