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Questions aboit IRAs

Chris Farrell Apr 12, 2010

Question: I am a loyal podcast listener. I have two questions that you could help with. The first is on ROTH IRA CONVERSION. Nearly all of my wife and my IRA’s are non-deductible contributions… My question is if it would be worth converting this to a ROTH IRA. I am not sure how it will benefit me but I want to make sure I am not missing anything. I am probably at an even plateau in my earnings, I max out my 401k but we continue to be above the Roth limit.

My second question is regarding my wife. My wife is permanently disabled. We make a decent living and I have a 401k through work. She receives income through social security disability and a disability policy. What I can’t figure out is how we can plan for her retirement or how someone in her situation would prepare. Her disability payments will stop at 65. Is there no way for her to contribute to retirement accounts besides the non-deductible amounts we currently give to our IRA’s. Thanks in advance for any advice you can offer. Nathan, Philadelphia, PA

Answer: Whenever it comes to dealing with questions about Roth-IRA conversions I have to lay out my caveats. They’re important. My concern is that he benefits of conversion are being oversold. So, before doing anything you’ll need to run some numbers. We’ve also posted a lot of information about the various twists and turns to think through before converting. For example, conversion doesn’t make sense under most circumstances if you don’t have the savings to pay the tax tab.

The best Roth-IRA calculator I am aware of is at You could also check out the calculators at and

That said, what you’re thinking of doing can be a good move. The reason is that the Roth is a far more attractive investment vehicle than the nondeductible IRA.

The non-deductible IRA is funded with after-tax dollars so you don’t get a tax deduction when you make your contributions. Your money grows tax-deferred but when you take it out you pay ordinary income taxes on the gain. And you must start making your required minimum distributions (RMD) beginning at age 70 ½. The Roth is also funded with after-tax dollars. But you don’t pay any taxes on the gain when you withdraw the money out during retirement. What’s more, there is no required minimum distribution date with the Roth.

I believe there is a simple answer to your second question. It’s true that in general you need earned income to contribute to an IRA of any kind. The exception to this general rule is the so-called spousal IRA. A stay-at-home Mom or a stay-at-home Dad can put money into an IRA even if they haven’t earned an income during the tax year. There are a couple of restrictions. The couple must be married. They must file a joint return. The “non-working” spouse has to be under age 70 ½. There is no household income cap for setting up a traditional IRA in the name of the non-working spouse. The normal income limits and phase-outs with a Roth-IRA hold, however.

So, there may be a reason I’m missing why your wife can’t make a spousal IRA. I always recommend checking with a tax professional before doing anything. That’s no boilerplate. The tax code is so Byzantine that it makes no sense. But it seems to me she should be able to have her own retirement account.

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