Contribute to Spousal Traditional IRA?
Hi, I contribute to my 401k and ROTH and my wife doesn’t work. TurboTax says I can get additional $825 refund if I contribute to a spousal traditional IRA for her in 2017. Online research recommends taking advantage of this. But isn’t the $5500 post tax $ that I put into a traditional IRA that will be taxed AGAIN (albeit at a lower rate) when she takes it out after 59.5? Isn’t this being double taxed? Is the advantage here to save on capital gains tax that I’d incur outside of IRA when she retires ? Any help appreciated!
You are saving way to much for the future! ;)
Traditional IRA is funded with pretax money (thats how u get 825 'back' now), grows tax free and u pay taxes on the capital+earnings when u withdraw. Roth IRA is post tax money, grows tax free, you pay no taxes if withdrawn after 59.5. Which one u pick depends on whether u believe tax rate will be higher or lower in the future vs. Now, what ur income levels will be now vs. Later, and whether u r even eligible for Roth IRA in the first place as it has an income cap.
Thanks for quick response. But isn’t the $5500 post income tax (28% already taxed)? $825 is a lot less than 28% income tax? Or am I missing something ?
That might depend on your specific situation tho. Perhaps reducing 5500 from your taxable income lowers your tax bracket? 825 of 5500 is exactly 15% so I am thinking turbotax is just guesstimating here. No matter how u approach this, if you have 5500 to spare, then this is a good thing to do.
@oralb, thx Updated.
Did you really have to wait for the last day? :)
I know :) I didn’t realize this deduction until finishing TurboTax last night, so..
So you waited for the second last day