In 2018, Elizabeth and Daniel (both age 40), a married couple with AGI of $118,000, file...
In 2018, Elizabeth and Daniel (both age 40), a married couple with AGI of $118,000, file a joint tax return. They each contributed $5,500 to their IRAs.
- How much can they deduct if they are both active participants in qualified retirement plans?
- How much can they deduct if Elizabeth is not an active participant in a qualified retirement plan, but Daniel is an active participant in his qualified retirement plan?
- How would your answer change if they are both active participants in qualified retirement plans but their AGI is $200,000?
Homework Answers
a.) How much can they deduct if they are both active participants in qualified retirement plans?
For 2018, the maximum annual contribution is the smaller of these
- $5,500
- 100 % of your compensation
As the age of Elizabeth and daniel is 40, they can deduct a maximum of $5,500 for husband and $5,500 for wife with a total of $11,000.
As $11,000 is within the limit, they can deduct the entire contribution to IRA
b) How much can they deduct if Elizabeth is not an active participant in a qualified retirement plan, but Daniel is an active participant in his qualified retirement plan?
If you are married and one spouse does not receive compensation,you can open an IRA account for the non working spouse.
you can contribute upto $5,500 to each of your account in 2018. if one of you is 50 or older the ,limit is $12,000 or $5,500 for the spouse under 50 and $6,500 for the spouse over 50.
when both spouse are age of 50 or more the limit is $13,000 or $6,500 per spouse.
if your spouse is under age 70 1/2, you can contribute to a nonworking spouse's account after you reach age 70 1/2.
You must file as married filling jointly to qualify for a spouse IRA.
As per above discussion even if the Elixabeth is not an active participant in qualified retirement plan they can deduct a maximum of $11,000.
c)How would your answer change if they are both active participants in qualified retirement plans but their AGI is $200,000?
Based on the IRA income and contribution limit, if AGI is $199,000 or more than they are not eligible for contribution. So if AGI is 200,000 they are not eligible for contribution.
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