If you are married, you can choose between filing your federal income tax return as a joint return or as a separate return. In general, the married-filing separately (MFS) status typically gives you fewer tax benefits than filing jointly. That's because MFS taxpayers aren’t allowed to claim certain tax benefits such as the student loan interest and tuition deduction. You also have more of your Social Security benefits taxed. Additionally, there are certain IRA contribution and deduction rules that are generally less favorable when you file separately.
If you want to make an annual Roth IRA contribution for the year, your modified adjusted gross income (MAGI) has to be within a certain dollar range. If you’re MFS, those limits are $0 - $10,000 for 2013 and 2014. For example, if your MAGI is exactly $5,000, i.e., right in the middle of the $0 - $10,000 range, you can only contribute half of the maximum Roth IRA amount for the year. If your income is $10,000 or more, you’re not permitted to make an annual Roth IRA contribution for the year.
If you want to convert your IRA to a Roth IRA, there are no longer any income limits. Before 2010, conversions were limited to taxpayers that had less than $100,000 in adjusted gross income. Further, if you were MFS, you weren’t allowed to do a conversion regardless of your income. Fortunately, you can now do a Roth IRA conversion even if you’re MFS and even if you’re not allowed to make an annual Roth IRA contribution.
If you want to make a Traditional IRA contribution, all you need is to be younger than age 70 ½ and to have compensation from your job for the year. Even if you’re married filing separately, you can still make an IRA contribution regardless of how high your MAGI is. But, as far as taking a tax deduction for your IRA contribution, you have lower income phase-out ranges. For example, if either you or your spouse actively participates in an employer retirement plan for the year, then your ability to take a tax deduction on your IRA contribution is phased out between MAGI of $0 - $10,000. So, it is possible that you can make an IRA contribution, but you probably won’t get a tax deduction for doing so.
Filing your tax return as MFS can be tricky so it’s best that you work with a competent tax adviser.
- By Joe Cicchinelli and Jared Trexler