Nondeductible IRA Contributions
Response to the following problem:
Mike and Marg Sweeney, both age 42, each want to set aside the maximum amount for their retirement using an individual retirement account. They prefer to make deductible contributions. Mike and Marg have $75,000 and $48,000 of earned income, respectively. Their modified AGI is $125,000. Marg is covered by an employer-maintained retirement plan. Mike's employer has no such plan.
a. Discuss the tax consequences if the Sweeneys use traditional IRAs to save for retirement.
b. Can you suggest a better plan? If so, what would it be?
c. How would your responses to Parts a. and b. change if Marg's earned income was $106,000, Mike's was $88,000, and the Sweeney's modified AGI was $200,000?