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What Is a Spousal IRA?

What Is a Spousal IRA?

We all know that saving for retirement is a good thing. We often think of retirement savings in terms of a percentage of our paychecks, but what about when someone doesn’t work? The IRS has a solution that allows a non-working member of a married couple to save for retirement in an IRA. It’s called, appropriately enough, a spousal IRA. Here’s how it works. Consider working with a financial advisor as you decide how to set up retirement savings accounts.

Spousal IRA: The Basics

A spousal IRA is a traditional IRA or Roth IRA in the name of a non-working spouse. The working spouse can contribute to a spousal IRA. That way, both members of the couple can be saved at once, even if only one is working outside the home. If the working spouse has maxed out his or her own retirement contributions for the year, contributing to a spousal IRA is a great way to boost the couple’s total retirement savings. For the non-working spouse, having a retirement account in his or her own name is an important form of financial independence. The two accounts must be held separately; they cannot be held as joint accounts like a bank account can.

Depending on whether you choose a traditional IRA or a Roth IRA, there are different tax advantages. Traditional IRAs are deductible in the year you make your contribution. Roth IRAs provide you with future income that will be tax-free when you draw on it in retirement.

Spousal IRA Rules

What Is a Spousal IRA?

To open a spousal IRA you must be married and file your taxes jointly. The contributing spouse’s income must be at least equal to the contributions to the spousal IRA. Or, if the contributor has his or her own IRA, taxable income must be at least equal to the sum of the contributions to both IRAs. In other words, you can’t contribute more than you earn.

If you choose a traditional IRA you’ll make pre-tax contributions that you deduct at tax time. Then, when you take distributions in retirement you’ll pay income tax on those distributions. You’ll also have to take Required Minimum Distributions (RMDs) starting at age 70.5.

If you instead opt for a Roth IRA you’ll make after-tax contributions. You won’t have to take RMDs and the distributions you take in retirement won’t be taxed. If you think your tax bracket will be higher in retirement than it is now you may be better off with a Roth account. Another option is to make one spouse’s IRA a traditional account and open a spousal Roth IRA. That way you’re hedging your tax risk.

Spousal IRA Contribution Limits

What Is a Spousal IRA?

The contribution limits for spousal IRAs are the same as for regular IRAs. In tax year 2023, that limit is $6,500 per year, or $7,500 if you’re 50 or older. Note that the limit is equal to your taxable compensation if that compensation is below these limits and this limit doesn’t apply to rollover contributions. This limit increases in 2024 to $7,000 and $8,000, respectively.

Bottom Line

Establishing a spousal IRA is a great way to make sure you’re maxing out your savings as a couple. It’s also a good insurance plan for the non-working spouse. Women are more likely than men to retire with insufficient savings. Don’t let this happen to you or your spouse. And while you’re in the personal finance zone, make sure both the working and non-working members of your household are covered by life insurance plans.

Retirement Tips

  • Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • SmartAsset’s retirement calculator will show how you are pacing in terms for retirement savings.

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