Contributions
"My wife works and is younger than I am," writes a reader in Corvallis, Ore. "When I retire, can I still contribute to my Roth IRA while she is still working?"
Yes, says Ed Slott, an IRA expert and accountant in Rockville Centre, N.Y. Typically you need earned income to fund an IRA, but there is an exception for nonworking spouses: For married couples filing jointly, income earned by the working spouse can be used to fund an IRA for the nonworking spouse.
It's called a spousal IRA, or, as of July, the "Kay Bailey Hutchison Spousal IRA." Congress renamed the section of the tax code laying out spousal IRA contribution limits after the former senator from Texas, who had sponsored a bill that increased the limits to equal what working spouses can contribute to their own IRAs.
This year those limits are $5,500 for people under age 50 and $6,500 for people 50 and over. So if the nonworking spouse is 52, the maximum contribution allowed for that spouse's IRA is $6,500. If the working spouse is 48, the most that could be contributed to his or her own IRA is $5,500.
The limits apply across all IRAs, so the most this hypothetical couple could contribute to all their IRAs combined is $12,000, again assuming the working spouse has taxable compensation of at least that amount.
A spousal IRA can be a traditional IRA or a Roth IRA. Traditional IRAs don't allow contributions beyond age 70½, while Roth contributions are phased out for married couples filing jointly with $178,000 to $188,000 of "modified adjusted gross income."
Conversions
There are no age or income restrictions on converting regular IRA assets into Roth IRA assets. However, whether to convert is a complex decision because you'll owe ordinary income taxes up front on the portion of the converted amount attributable to your deductible contributions and investment earnings.
One reader observes that if he retires before he starts taking Social Security, he'll be in a low income-tax bracket during those intervening years. "That seems to be a good time to convert and pay some income tax," he writes. "My spreadsheet tells me that as long as I don't try to convert too much before I start taking Social Security at 70, I come out better in the long run. Any thoughts?"
"Your spreadsheet is correct," says Jonathan Guyton, financial adviser and principal of Cornerstone Wealth Advisors in Edina, Minn.
Converting then allows you to "fill up" the 15% tax bracket and pay taxes on the converted amounts at that low rate, Mr. Guyton says. For a married couple filing jointly, this bracket tops out at $72,500 of taxable income this year, so even if you claim only the standard deduction, you can still have about $100,000 of total income and stay below the threshold, Mr. Guyton says.
Converting after Social Security starts could make more of your Social Security benefits taxable, he adds, which can wipe out the conversion's advantages.
As for which IRA assets to convert, choose equities over bonds, says Mr. Guyton. This will put your highest-returning investments in the Roth, where they can grow tax-free. It also will slow the growth in your regular IRA, reducing future required distributions as well as subjecting less of your Social Security benefits to taxation.
"Just don't convert IRA assets you ultimately plan to leave to charity since they don't have to pay income taxes," he says.
Distributions
If you're over age 70½, you must withdraw a minimum amount from your traditional IRA every year. One reader wonders whether transferring shares of stock from a traditional IRA to a taxable brokerage account would satisfy this "required minimum distribution" rule.
Absolutely, says Mr. Slott. This was a popular strategy during the last financial crisis, when investors were reluctant to sell shares while stocks were down. They simply transferred the shares themselves, using cash from other sources to pay whatever taxes are owed.
"The only warning there is once you do that you have to keep track of your new basis for that stock," says Mr. Slott. In this case, you'd typically pay tax on the fair market value of the stock on the date of the distribution, he says, so that would be your new starting value, or "basis," for figuring gains or losses in the future.
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