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Ask an Advisor: I Made $310,000 Last Year and Have $546,000 in Retirement Savings, But My Spouse Doesn’t Work. How Can I Save More?

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Financial advisor and columnist Michele Cagan

I am 48 years old. I made $310,000 last year and I currently have $546,000 in my retirement plan at work. My husband is on disability and doesn’t work and does not have a 401(k) plan. I wanted to open a Roth IRA but I read that I make too much money. What options do I have to save more money for retirement? I’m debt-free except for my mortgage, which I’m trying to get rid of in the next two years before my daughter goes to college. What would you advise? 

– Nilda

Navigating retirement account rules can be confusing and frustrating, making it seem harder to save as much as you want to. You already have a solid foundation to build on, and more options than you might realize to beef up your savings. 

Even though you have a workplace plan, you can still contribute to a traditional IRA, though your contribution would be non-deductible. You can also create and contribute to a spousal IRA for your husband. And while you make too much money to directly contribute to a Roth IRA, you may be able to contribute through a backdoor Roth IRA. 

As for your mortgage, if your interest rate is lower than 4%, it might be worth not making extra payments and either saving or investing that money instead. High-yield savings accounts, for example, currently yield around 5%. One-year certificates of deposit (CDs) are even paying up to 5.5%, or more. Remember, just because savings or investments aren’t in an official tax-advantaged retirement account doesn’t mean you can’t use them to fund your retirement.

Consider speaking with a financial advisor for more help saving and planning for retirement.

Contribute to a Workplace Plan and an IRA

A woman reviews her IRA and workplace retirement plan balances.

Anyone can contribute to both a workplace plan and a traditional IRA, but your contribution may not be deductible, depending on your income. 

You can contribute up to $6,500 ($7,500 if you’re 50 or older) to an IRA for 2023. If neither you nor your spouse are covered by a workplace retirement plan, your contributions will be deductible.

However, if you or your spouse has a workplace retirement plan like a 401(k), that contribution may be only partly deductible or completely non-deductible. Even if you can’t take a current tax deduction for your contribution, you’ll still get tax-deferred growth in the account. The growth and earnings will be taxed when you take withdrawals in retirement.

Another plus: Having money in the IRA gives you the option of converting it to a Roth IRA. (And if you need help planning out your Roth conversion, talk it over with a financial advisor.)

The deductibility you might have depends on your household income and filing status:

Single or Head of Household Covered by Workplace Plan

If you are single or the head of your household and have a workplace plan in 2023, IRA contributions are:

  • Fully deductible if you earn up to $73,000
  • Partially deductible if you earn between $73,001 and $82,999
  • Non-deductible if you earn $83,000 or more

Married, Filing Jointly and You Have a Workplace Plan

If you are married, file jointly and have a workplace plan in 2023, IRA contributions are:

  • Fully deductible if you earn up to $116,000
  • Partially deductible if you earn between $116,001 and $135,999
  • Non-deductible if you earn $136,000 or more

Married, Filing Jointly and Your Spouse Has a Workplace Plan, But You Don’t

If you are married, file jointly and have a spouse with a workplace plan in 2023 (but you do not), IRA contributions are:

  • Fully deductible if you earn up to $218,000
  • Partially deductible if you earn between $218,001 and $227,999
  • Non-deductible if you earn $228,000 or more

Create and Fund a Spousal IRA

In general, you have to earn income in order to contribute to an IRA. The exception is if you have a spouse who works and earns enough to cover two IRA contributions. You can open a spousal IRA for the nonworking spouse. A spousal IRA gives your family a chance to double down on retirement savings.

Despite its name, a spousal IRA is no different than a regular IRA in how it’s set up or its tax benefits. It’s not a joint account, either. Only the nonworking spouse owns this IRA. To qualify for a spousal IRA, you have to use “married filing jointly” as your income tax filing status, though. 

The same contribution limits for Roth IRAs and deductibility limits for traditional IRAs apply the same way they would for any retirement account. Traditional spousal IRAs are also eligible for Roth conversions. (And if you have more questions about spousal IRAs, consider matching with a financial advisor.)

Is a Backdoor Roth IRA Right for You?

A couple sets up a spousal IRA on a laptop.

Roth IRAs come with a few beneficial twists that make them desirable for many taxpayers. For one thing, as long as you follow the rules, all withdrawals – including growth and earnings – are completely tax-free. For another, you don’t have to take required minimum distributions (RMDs), so your money has more time to grow.

Unfortunately, Roth IRA contributions are subject to income limits, locking many people out of them. For 2023, single filers earning $153,000 or more and married filing jointly filers earning $228,000 or more can’t contribute to Roth IRAs.

That’s where the backdoor Roth comes into play. This conversion process allows higher earners the opportunity to move money sitting in their traditional IRAs into Roth IRAs. (And if you need help setting up a backdoor Roth, talk it over with a financial advisor.)

The process is pretty simple. If you don’t already have a Roth account set up, you’ll create one. You tell your IRA administrator that you want to convert all or a part of your traditional IRA to a Roth IRA. You fill out some paperwork, and the administrator handles the rest. 

Some other caveats to keep in mind:

  • Once you make this conversion, you can’t undo it. 
  • Roth conversions typically come with big tax bills. The conversion amount may increase your taxable income, pushing you into a higher tax bracket.
  • There’s a special pro rata tax rule requiring that you have to consider all of your traditional IRAs as a whole, both pre-tax and after-tax contributions, to determine how much tax you’ll owe on the conversion. You can’t pick and choose which IRA money you want to convert.
  • Roth conversions are subject to a five-year rule that regular Roth contributions are not. You have to wait at least five years to withdraw those funds or you could owe taxes and possibly a 10% early withdrawal penalty.

That said, the tax-free withdrawals in retirement may be well worth all the potential complications. 

Bottom Line

You can increase your retirement savings by contributing to an IRA and a spousal IRA even if you have a workplace plan. You can also create tax-free retirement income streams by converting some of your retirement funds to Roth IRAs.

Tips for Finding a Financial Advisor

  • Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Consider a few advisors before settling on one. It’s important to make sure you find someone you trust to manage your money. As you consider your options, these are the questions you should ask an advisor to ensure you make the right choice.

Photo credit: ©iStock.com/Moyo Studio, ©iStock.com/LaylaBird

Michele Cagan, CPA, is a SmartAsset financial planning columnist and answers reader questions on personal finance and tax topics. Got a question you’d like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.

Please note that Michele is not a participant in the SmartAdvisor Match platform, and she has been compensated for this article.

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