Marriage + Roth IRA Contributions = Possible Penalties

Share Post: facebook Created with Sketch. twitter Created with Sketch. linkedin Created with Sketch. mail Created with Sketch. print Created with Sketch.

Photo by Gades Photography on Unsplash

Published by Zachary Langan, Associate Wealth Advisor

Are you or someone you know getting married? Do you contribute to a Roth IRA? If so, this important information may help stave off potential tax penalties later.

The tax benefits of a Roth IRA make it one of the more attractive investment savings options, especially for younger people that likely are not earning as much today as they will later in life.

For many young savers, putting money into a Roth IRA has the benefit of paying lower tax rates today rather than higher tax rates later in life. Additionally, the money is never taxed again.  There is no tax in the years it is growing, and withdrawals later in life come out completely tax-free.

That said, the IRS puts strict income limits on who can contribute to a Roth IRA. Once your income, or Modified Adjusted Gross Income (MAGI), rises over a certain amount, you are not eligible to contribute directly a Roth IRA. The income amount depends on whether you are single or married.

In 2018, a single person with income under $120,000 can contribute the maximum $5,500 to their Roth IRA account. But once married (filing a joint tax return), the combined income of both spouses must be under $189,000 for each to make the maximum $5,500 contribution.

This limit for married couples can create a dilemma for newlyweds. When one spouse earns a high income, or when both spouses were already near the limit before marriage, tying the knot could throw both over the IRS income limit.

Consider the example of Mark and Lauren, who were married in July of 2018. Mark’s salary is $70,000, and for several years he’s been contributing each month from his bank account to his Roth IRA, enough to reach the annual maximum contribution of $5,500.

Lauren’s income of $140,000 means she has been unable to contribute to a Roth IRA as a single person for several years. Once married, Mark and Lauren’s combined income will exceed the $189,000 income limit for married couples, disqualifying both from making a Roth IRA contribution for 2018.

But what about Mark’s monthly contributions made during the first half of the year prior to the wedding while he was still legally single? The IRS says the limits apply to the entire year, even if the wedding is in late December.

Mark must act prior to the next tax-filing deadline to remove all the contributions he made during the first half of 2018, plus all the earnings on that money, to undo the contributions made before the wedding. If not, he’ll have to pay 6% penalty on those excess contributions.

If you find yourself nearly or newly married, know there are many tax beneficial ways to save money for your future – the Roth IRA is just one of those.

If you are fortunate enough to have earnings exceeding the IRS’s income limits for Roth IRA contributions, there are even ways to get money into a Roth IRA through “back door” methods. Please reach out to us to discuss these and other options in more detail. Happy saving!

This article is designed to provide accurate and authoritative information on the subjects covered. It is not, however, intended to provide specific legal, tax, or other professional advice. For specific professional assistance, the services of an appropriate professional should be sought.

facebook Created with Sketch. twitter Created with Sketch. linkedin Created with Sketch. mail Created with Sketch. print Created with Sketch.
Share Post: facebook Created with Sketch. twitter Created with Sketch. linkedin Created with Sketch. mail Created with Sketch. print Created with Sketch.


Carson Investment Research’s Outlook ’23: The Edge of Normal

At long last, The Carson Investment Research team is proud to officially release our 2023 Market and Economic Outlook, aptly titled Outlook ’23: The Edge of Normal. You can download the whitepaper here. As you are all painfully aware, 2022 wasn’t pretty for investors – it was the first year …

What Documents You Should Provide to Your Tax Preparer

Mike Valenti, CPA, CFP®, Director of Tax Planning Tom Fridrich, JD, CLU, ChFC®, Senior Wealth Planner It’s January, so it’s officially tax season! One of the most common client questions heard by tax preparers is, “So, what do you need from me?” The short answer to that question is often, “ …

Planning for Your First Required Minimum Distribution in Retirement

Mike Valenti, CPA, CFP®, Director of Tax Planning Qualified retirement plans – such as 401(k)s, 403(b)s and IRAs – offer clear tax advantages. Traditional 401(k)s, 403(b)s, and IRAs offer a tax deferral on contributions and growth until distribution. Their Roth counterparts can provide an i …

How to Leverage Tax-Advantaged Accounts in 2023

Kevin Oleszewski, CFP®, MST, EA, Senior Wealth Planner  As you’re setting your new year’s goals, one that should top everyone’s list is increasing your savings. After all, we’ve recently seen inflation at work, reminding us that even everyday essentials can bust budg …
1 2 3 112 113 114

Get in Touch

In just 15 minutes we can get to know your situation, then connect you with an advisor committed to helping you pursue true wealth.

Schedule a Consultation