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2gifts asked If your wife is a realtor and is considered self-employed such that she pays self-employment tax, does she also take advantage of the tax-deferred retirement vehicles available to her as a self-employed individual?

To which you replied Yes, she has been contributing the maximum amount into an IRA each year

Sorry, as I interpret your answer, it should have started with "No". Everyone who earns income, or is filing MFJ with someone who has earned income, and meets the age requirement of being under 70 1/2 by the end of the tax year, is eligible to contribute to a Traditional IRA, although the contribution may not always be deductible, depending on income and other retirement plans that each is covered by. If that is the only retirement account (rather than a SEP IRA or a SIMPLE IRA) that your wife is contributing her income to, then she is not taking advantage of retirement vehicles that are available to her as a self-employed individual. I would encourage you to take a look at the link that 2gifts supplied, and ask your tax advisor if she could take advantage of additional retirement vehicles, such as SEP IRA, Simple IRA and/or 401(k).

starting next year our other source of income will be money coming out of our retirement accounts, so next year's contribution will go into a Roth, which of course is not deductible.

Huh? Why would her contribution be changed from a deductible contribution to a Roth contribution just because you are no longer working? If anything, that would make it easier for her to deduct the contribution Traditional IRA, assuming you were covered by a retirement plan at work. There are income limits in place on Traditional IRA deductibility for MFJ filers whose spouses are covered by a retirement plan, but there are no income limits on Traditional IRA deductibility when neither person MFJ is covered by a retirement plan at work. Your wife would still have to have earned income. If she has enough earned income and you are under 70 1/2 by the end of 2019, you could potentially also make a deductible IRA contribution based on her earned income.

If your wife will be over 70 1/2 at the end of 2019, she would not be able to make deductible Traditional IRA contribution, but she still would be able to make a Roth IRA contribution, since there are no age requirements for Roth IRAs. If that were the case, then the reason given for her making a contribution to a Roth rather than to a Traditional IRA should have been because of her age, not because of the source of your income. However, if she doesn't already have a Roth IRA in place, I would question the usefulness of this strategy, since the Roth IRA must be in place for at least 5 years before she would be able to make qualified withdrawals.

I would strongly suggest that you see a tax advisor sooner rather than later about these issues.

AJ
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