Question

Lyndon, age 24, has a nonworking spouse and earns wages of $36,000 for 2018. He also received rental income of $5,000 and dividend income of $900 for the year. What is the maximum amount Lyndon can deduct for contributions to his and his wife's individual retirement accounts for the 2018 tax year?

Answer 1

Answer:

$10,000

Explanation:

Individual retirement accounts annual contribution IRA annual contribution limit in both traditional and Roth are as follows:

1. 100% of taxpayer's compensation or earned income.

2. $5,000 for self and $5,000 for spouse who has no earned income. As it totals $10,000. In 2018, there is additional catch-up of $1,000 IRA contribution for taxpayer and spouse of age 50 and above.  

L, 27 years old has a nonworking spouse. L's earned income is $36,000. The contribution for IRA is calculated in the earned income not from other income. Since, his earned income is below the phase out range, he can contribute 100% of earned income or $5,000, whichever is less.  

The maximum amount he can contribute for IRA for himself and his spouse is $10,000. ($5,000 for himself and $5,000 for his spouse)