Don’t work? There’s still a way to save in a Roth IRA
Twice each week, Simply Money’s Nathan Bachrach, Ed Finke and Amy Wagner are answering your financial questions. If you, a friend, or someone in your family has a money issue or problem, please send those questions to yourmoney@enquirer.com
Bob from Fort Thomas: I’m currently retired and receiving Social Security benefits, but my wife is working and will make about $40,000 this year. We will be filing 2017 federal taxes as married with a joint return. I know my wife can contribute to a Roth IRA, but can we also make a “spousal contribution” to a Roth IRA for me for 2017 even though I am already receiving Social Security?
Answer: Yes. As long as your taxes are filed as “Married Filing Jointly” and your wife continues to work and has eligible income, you can both contribute to a Roth IRA in 2017. There are a few other requirements, but it doesn’t appear those apply to your current situation. A Roth isn’t titled “spousal,” that’s just a term that is used to describe that it was funded due to a spouse earning an income.
A Roth IRA is similar to a traditional IRA. The biggest difference is how it’s taxed. While a traditional IRA is commonly funded with pre-tax dollars, a Roth IRA is funded with after-tax dollars. This simply means you’ve already paid taxes on the money and while you won’t get a tax deduction for the contribution year, any growth will be tax-free. Once you begin taking money from the account (after the age of 59½ or other defined reasons), you won’t need to pay taxes on the money withdrawn. A Roth IRA account allows you to contribute past the age of 70½ too, as long as a spouse continues to have eligible income. It also allows you to keep the money in the account indefinitely, meaning there’s no required minimum distribution (RMD) starting at age 70½. Since you’re receiving Social Security and retired, we’re guessing you and your wife are over 50. Taking into account her income, both of you can contribute up to $5,500, plus a $1,000 catch-up contribution in 2017.
The Simply Money Point is that a Roth IRA can be a fantastic way to save, especially if you’re concerned about higher income tax rates in the future. It’s a financial tool you can use to help protect your money and make it grow.
Responses are for informational purposes only and individuals should consider whether any general recommendation in these responsesare suitable for their particular circumstances based on investment objectives, financialsituation and needs. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing, including a tax advisor and/or lawyer. Nathan Bachrach and Ed Finke and their team offer financial planning services through Simply Money Advisors, a Sycamore Township-based SEC registered investment advisor. Call (513) 469-7500 or email simplymoney@simplymoneyadvisors.com.