My wife and I have an AGI somewhere between $120k - $140k depending on how much I make on side gigs throughout the year. We both started new full-time jobs within the last 12 months.

Here is the background:

  • We file jointly as "married"

  • Her new job does not offer retirement benefits of any kind. Her income is about $38k/y

  • My job has enrollment for a Traditional 401k with 3% match that I can enroll in starting in June. My income from this will be between $90-100k this year, plus I get some random 1099 work throughout the year.

  • I plan to contribute $729 per pay period to my employer sponsored 401k. Over a full year, this would put me at the $17,500 max contribution.

  • She has a few thousand sitting in a previous account from a previous employer. I have about $35k across a few 403(b)s. I'm happy with my 403(b) performance, so I likely won't roll over - she will roll over.

At first glance, it seems that the smart move is for her to open a Traditional IRA with somewhere like Vanguard so that we can write off the contributions. Then, I read that if your AGI is over $115k for the year, that you can't write off any of the 401k contributions. This seems like it would lead to paying taxes twice - once on the money going in, and then again when you begin to take a distribution. Is this true? What option does she have that's most advantageous from a tax perspective?

Also, I just pretend that I know what I'm talking about with this stuff, so if I've left out any important details, please feel free to ask!

  • For a non-deductible traditional IRA, earnings are taxed upon distribution but contributions are not. So there is no double taxation.
    – Craig W
    Feb 1, 2014 at 18:13
  • @CraigW what about the line in the link that I posted to - $115,000 or more - no deduction That to me says that you don't get to deduct your contributions from your taxes? Did I misunderstand it? How would that work, since she would be paying into it with taxed dollars since it wouldn't be withheld by the employer?
    – MDMarra
    Feb 1, 2014 at 18:16
  • 1
    I'm not sure how it works with married couples if only one is covered by a retirement plan at work. But regardless, if you were to make a non-deductible traditional IRA contribution, that money would be taxed like normal income that year. When you take a distribution, only the earnings portion of it would be taxed. Just clarifying that there would not be double taxation.
    – Craig W
    Feb 1, 2014 at 18:23
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    @CraigW: You might also say that deductible and non-deductible Traditional are the same, since in both cases, principal and earnings are each taxed once; but in reality, non-deductible Traditional IRA is much worse than deductible Traditional IRA, for the reason that the principal taxed now means the value of principal + earnings in the future have all been "taxed", to taxing the earnings again is effectively, "double taxation" on the value of the money.
    – user102008
    Feb 2, 2014 at 11:16
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    @user102008 I was just clarifying to the OP that if they contribute $5k to a non-deductible traditional IRA and then take a distribution of $10k a while later, they pay taxes on $5k not $10k (or 50% if you take a partial distribution). The point is moot though because I see no reason why anybody would contribute to a non-deductible traditional IRA except to do an immediate Roth conversion.
    – Craig W
    Feb 2, 2014 at 19:23

1 Answer 1


The Forbes article IRS Announces 2014 Retirement Plan Contribution Limits For 401(k)s And More spells this out pretty clearly.

For your wife - "an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $181,000 and $191,000."

So, with your wife not covered by a 401(k), and your income below the stated limit, she can deduct the IRA contribution. When your income gets beyond that limit, she can make a non-deductible contribution and convert to Roth, if she wishes.


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