Share this Page URL

Chapter 9. IRAs Versus 401(k)s—Which Is ... > Getting Your Money out of a Deductib... - Pg. 91

IRAs Versus 401(k)s--Which Is Better? 91 Terms to Know Adjusted gross income (AGI) is your total income from all sources (salary, bonus, commissions, unemployment, business income, dividends, interest, capital gain) minus any adjustments to income (alimony paid, losses, and so on). Remember that your AGI already has been reduced by your pre-tax 401(k) contributions. A deductible spousal IRA can be set up under two scenarios: · Working spouse--Before 1998, the law said that if your spouse was covered by a retirement plan and you were not, you could not establish a tax deductible IRA. That was a stupid law. Spouses are now eligible for an IRA as individuals, although they may file taxes jointly. Bottom line: Spouses are no longer prohibited from contributing to a deductible IRA. (See the following income limits.) · Nonworking spouse--A working spouse can establish an IRA and contribute up to the legal limits for a spouse who does not have earned income--and get a tax deduction for it. The spousal IRA is fully deductible for couples with an AGI below $150,000. The deduction phases out be- tween $150,000 and $160,000.