Gyroscopic Investing

Trad. IRA contribution income phase-out limits, depending on who is working, whether they have a retirement plan, what their spouse has, how tall they are, their favorite color, sign, sexual orientation and what state they live in, can be a myriad of bs to figure out.

Roth IRA limits are much more simple, and it's based on your joint income... Besides, Roths are kind of cooler anyway, especially when you're maxing everything out and you want as much net tax-deferred space as possible (a Traditional IRA with $5,500 in it might only really FEEL like $3,500 in spending money after taxes).

For 2013, the Roth Income limits for MFJ are $181-$191k.  So you're starting to be phased out of your $5,500 Roth allowance at $181k, and you're fully phased out at $191k.

I don't think there are any weird special limitations because it's a spousal.

I am in no way a tax expert, but I'm pretty sure you can contribute the max to your wife's IRA (I think it was $5500 last year) and deduct it on your 2013 return (if it's a traditional IRA).  She is treated separately from you for IRA contribution purposes and you have until April 15, 2014 to make the contribution for the 2013 tax year.

My situation is very similar to yours, and I did this last year. Since we had capital gains in 2012 and would have owed taxes, the IRA deduction helped us get a nice refund instead.

BUT... consult your local tax professional, your mileage may vary, etc.

Tenn,

Careful with the SS tax trap.  Lotsa people think they'll be in a low marginal bracket, and possibly may not.  You might want get a (free) license of ITO (Intuit Tax Online), and play around with your SS checks coming in along with your expected non-SS retirement income from taxable sources.  If you're in the wrong state and the wrong zone of income, you could be in an effective 38% tax bracket (about, if memory serves).  This could be with income as low as $50,000, depending on the break-down of SS vs other income.

I know I probably just threw a wrench into your retirement planning, but I promise it wasn't me... it was the US tax code .

TennPaGa wrote:

moda0306 wrote: If you're in the wrong state and the wrong zone of income, you could be in an effective 38% tax bracket (about, if memory serves).  This could be with income as low as $50,000, depending on the break-down of SS vs other income.

Yowza!

Marginal-effective rate... not just effective... my bad... still sucks though when you go to take an extra $5k out and 7 months later uncle sam and aunt Minnesota ask for $2,000 of it.

moda0306 wrote: Tenn,

Careful with the SS tax trap.  Lotsa people think they'll be in a low marginal bracket, and possibly may not.  You might want get a (free) license of ITO (Intuit Tax Online), and play around with your SS checks coming in along with your expected non-SS retirement income from taxable sources.  If you're in the wrong state and the wrong zone of income, you could be in an effective 38% tax bracket (about, if memory serves).  This could be with income as low as $50,000, depending on the break-down of SS vs other income.

I know I probably just threw a wrench into your retirement planning, but I promise it wasn't me... it was the US tax code .

How could you be in a 38% tax bracket with only 50K of income? Even if you're talking about income before SS that sounds extremely high to me.

Ns3,

This would be their marginal combined (federal and state) income tax rate.  It is caused because SS isn't taxable at low incomes, but as your taxable income rises, your SS starts to become taxable. This significantly affects your effective marginal tax rates, because for every $1 of additional income you realize, you see $1.85 of additional taxable income on your taxes.

moda0306 wrote: Ns3,

This would be their marginal combined (federal and state) income tax rate.  It is caused because SS isn't taxable at low incomes, but as your taxable income rises, your SS starts to become taxable. This significantly affects your effective marginal tax rates, because for every $1 of additional income you realize, you see $1.85 of additional taxable income on your taxes.

Marginal federal rate on 50k is 15% so it seems to me you would have to be looking at some monster state and local rates to push you into a 38 percent effective marginal bracket.

Happily I live in FL where income taxes are forbidden by the constitution but I can't help but wonder what states and/or cities we're talking about here?

ns3,

It's effective marginal tax rate.

If for every $100, you recognize $15 of tax, but another $85 of Social Security becomes taxable, that's another $13 of tax.  This means you're in the 28% federal "effective marginal tax rate."

If you add a state like MN that does it similar, you could end up with quite the tax bill.

moda0306 wrote: If for every $100, you recognize $15 of tax, but another $85 of Social Security becomes taxable, that's another $13 of tax.  This means you're in the 28% federal "effective marginal tax rate."

Your original assertion was 38% so I'll take it that might have been a typo and you meant 28%.

Still, looking at the federal tax tables for this year (which I did yesterday doing my taxes because me and my wife were getting close), the 28 percent rate starts somewhere around $148k so your math still doesn't add up in my mind.

ns3,

I was including state taxes in the 38%:

If you're in the wrong state and the wrong zone of income, you could be in an effective 38% tax bracket

I'm not talking about stated rates... but effective marginal rates... I'll try to explain later... can't now .

moda0306 wrote: ns3,

I was including state taxes in the 38%:

If you're in the wrong state and the wrong zone of income, you could be in an effective 38% tax bracket

I'm not talking about stated rates... but effective marginal rates... I'll try to explain later... can't now .

NP.

To be quite honest your 38% statement reminded me of some marketing materials I read somewhere and that's why I was dubious.