A taxpayer can contribute to an IRA for a non-working spouse. The joint income minus taxpayers IRA contribution, must be enough to cover the non-working spouse’s contribution. If the non-working spouse doesn’t actively participate in a qualified retirement plan, a contribution to an IRA can be made, regardless of the joint income. If the non-working spouse does actively participate in a qualified retirement plan, they can contribute if the taxpayers Adjusted Gross Income is $150,000 or less. Otherwise, rules are the same as for traditional IRAs.
The parents reduced their taxable income by $5,000 by contributing to an IRA for a non-working spouse. Since the parents income was taxed at the 30% tax bracket, the income reduction may decrease their income taxes by $1,500 ($5,000 x 30%).
If you are in a combined (federal, self-employment, and state) tax bracket of 30%, you could reduce your taxes up to $300 for every $1,000 of income reduction by contributing to an IRA for your non-working spouse.