If you or your spouse work and are eligible to contribute to individual retirement accounts (IRAs), did you know that you may be eligible for an additional tax-advantaged savings option?
A spousal IRA allows a non-working or lower-earning spouse to contribute to an IRA based on the income of the working spouse.
In this article, we will explain everything you need to know about spousal IRAs, including eligibility requirements, contribution limits, and potential benefits.
By taking advantage of this little-known savings option, you and your spouse can increase your retirement savings and enjoy greater financial security in the future. Keep reading to learn more!
What Is a Spousal IRA?
How can a nonworking spouse plan for retirement? Can I contribute to my husband or wife’s IRA if she doesn’t work? Yes, a nonworking spouse can open and contribute to a spousal IRA! Continue reading to learn how.
A spousal IRA is an individual retirement account established for a married couple. The account is established in the name of the spouse who is not working. The IRA contribution is made based on the working spouse’s income. The couple gets the benefits of the account when they retire.
A spousal IRA is a great way for a nonworking spouse to save for retirement. The account can be used to get tax breaks and the couple can get the benefits of the account when they retire.
Why choose a spousal Roth IRA? – Benefits of a spousal IRA
An added $6,500 per year over 30 years at a 8% rate of return can add up to over $800,000 at retirement. Income tax-free!! For comparison, if you are in the 25% tax bracket – that same account would grow to little more than $500,000. This can have a dramatic impact on your future income and withdrawals in retirement.
A spousal Roth IRA is an individual retirement account (IRA) set up for a married couple. Contributions to a spousal Roth IRA are made with after-tax dollars, and the account grows tax-free. Withdrawals from a spousal Roth IRA are tax-free, as long as they are made after 59 1/2 and the account has been open for at least five years.
How can a spousal IRA benefit couples? There are several benefits to setting up a spousal Roth IRA.
- First, it allows both spouses to save for retirement, even if one spouse does not have an earned income.
- Second, the account grows tax-free, which means more money will be available for retirement.
- Third, withdrawals from the account are tax-free, meaning more money can be used to cover expenses in retirement.
Setting up a spousal Roth IRA is a great way to save for retirement. It allows both spouses to contribute to the account, and the money grows tax-free. In addition, withdrawals from the account are also tax-free, meaning more money can be used to cover expenses in retirement.
Spousal IRAs: Rules, Limits, Deductions & How-to’s
There are a few rules that you need to be aware of when it comes to spousal IRAs.
What are the maximum contribution limits for a spousal IRA?
How much can you contribute to a spousal IRA? First, the contribution limit for a spousal IRA is the same as it is for a regular IRA.
This means that each spouse can contribute up to $6,500 per year (or $7,500 if they are over the age of 50 and use the $1,000 catch up contribution). Catch-up contribution provisions can help those age 50 or older save more.
| 2022 IRA CONTRIBUTION LEVELS | ||
| Year | Under age 50 | Age 50+ |
| 2022 | $6,000 | $7,000 |
| 2023 IRA CONTRIBUTION LEVELS | ||
| Year | Under age 50 | Age 50+ |
| 2023 | $6,500 | $7,500 |
Joint Roth IRA Account?
Second, the contribution must be made to a separate IRA for each spouse. This means that you can not just make one contribution and then split it between the two IRAs. There is no such thing as a joint Roth IRA – each spouse must make their own contribution. You can have multiple Roth IRAs though.
Spousal IRA Income Limits
Third, the spouse who is making the contribution must have earned income in order to contribute. This can come from wages, self-employment, or alimony. The non-working spouse can not make a contribution if they do not have any earned income.
What is the taxable income limit for a spousal IRA? There are income limits that apply to Roth IRA accounts, and these limits are different for married couples than they are for single individuals. For married couples, the upper-income limit for contributing to a Roth IRA or spousal Roth IRA in 2022 is $214,000 and $218,000 in 2023.
The income limits for Roth IRAs are important to consider when saving for retirement, as they can impact how much money you will be able to save. If you are married and both you and your spouse earn less than $204,000, you will be able to contribute the maximum amount to your Roth IRA.
This can give you a significant advantage when it comes to saving for retirement.
The upper earning limits for a spousal Roth or traditional individual retirement account (IRA) is $214,000 for 2022 and $218,000 in 2023
| 2022 Spousal IRA Eligibility | ||
| If your filing status is… | And your modified AGI is… | Then you can contribute… |
| Married Couples Filing Joint Returns | < $204,000 | up to the limit |
| > $204,000 but < $214,000 | a reduced amount | |
| > $214,000 | zero |
| 2023 Spousal IRA Eligibility | ||
| If your filing status is… | And your modified AGI is… | Then you can contribute… |
| Married Couples Filing Joint Returns | < $218,000 | up to the limit |
| > $218,000 but < $228,000 | a reduced amount | |
| > $228,000 | zero |
Spousal IRA Contribution Deadline
Fourth, the spousal Roth IRA contribution deadline must be made one time, by the tax filing deadline. For most people, this means April 15th of each year.
Finally, it is important to remember that a spousal IRA is still an individual retirement account. Does a spousal IRA have to be a separate account? Each spouse is still the owner of their own accounts. Joint IRA accounts are not allowed. IRAs are individual accounts, though the number of IRAs each of us have are unlimited.
- Here is a great reference chart of the 2023 IRA Annual Contribution Limits and Tax Tables
How a Spousal IRA Works – 7 spousal IRA rules to know
Can a stay-at-home mom contribute to an IRA?
- You can only open and contribute to a spousal IRA if you file married filing jointly – you cannot use a spousal IRA if you file married filing separately. You must file a joint federal income tax return.
- You can only contribute to a spousal IRA if your income is below the threshold of $2228.000 in 2023 (see chart above).
- If your taxable compensation is above $214,000/$228,000 – you may be able to still do a “backdoor Roth IRA” to make an indirect spousal IRA contribution. Even if you don’t qualify for tax-deductible contributions, you can still have a Roth IRA.
- There is no age limit to contribute to a spousal IRA. As long as your working spouse has an earned income – a nonworking spouse can contribute to a spousal IRA.
- Keep in mind you cannot have a joint Roth IRA account. The spousal IRA account is in the non-working spouse’s name. This means that the non-working sponsor will have complete control over the spousal IRA account.
- The spouse that controls the Roth IRA account can decide what to invest in, and how to invest (mutual funds, index funds, individual stocks, bonds or ETFs).
- The owner of the spousal IRA account does not have to name the working spouse as the beneficiary of the IRA account. There are benefits to leaving an inherited IRA to a spouse, a spousal IRA that is rolled over to the surviving spouse is treated as if they were the original owner. But the IRA account owner can name anyone that they choose to be the beneficiary of the account.
Can You Fund an IRA with Alimony or Child Support?
The simple answer is, no, you cannot contribute to a spousal Roth IRA using alimony or child support as earned income.
- Alimony and child support both do not count as earned income – so you cannot use that to count as earned income towards a contributory IRA
- Since you are not filing your taxes as married filing jointly, you would not be eligible for a spousal Roth IRA.
How to Decide Between a Traditional or Roth Spousal IRA
When trying to decide between a traditional or Roth spousal IRA, there are a few things you need to consider.
- The first is whether or not you are currently employed. If you are not employed, then you are not able to contribute to a Roth IRA. If you are married and your spouse has earned income – then yes, you can open a spousal Roth IRA.
- The second thing you need to consider is your earnings. If you are married and filing jointly, your combined income must be less than $214,000 (2022) or $228,000 in 2023 – in order to be able to contribute to a Roth IRA. If your income is over that amount, you are not eligible to contribute.
- The next thing you need to consider is your tax bracket. If you are in a higher tax bracket, you will benefit more from a traditional IRA because you will be able to deduct your contributions from your taxes.
- However, if you are in a lower tax bracket, you will benefit more from a Roth IRA because you will not have to pay taxes on your withdrawals.
- The last thing you need to consider is your retirement goals. If you want to have access to your money sooner, a traditional IRA may be a better option for you because you can start taking withdrawals at age 59 1/2.
- However, if you want your money to grow tax-free and you are willing to wait until age 72 to take withdrawals, a Roth IRA may be a better option for you.
- If you don’t want to be forced to take the required minimum distributions in retirement from your IRA at age 72, a spousal Roth IRA may be the better choice. Roth IRA’s do not have to take required minimum distributions (RMDs)! This could even impact the taxation of your social security benefits.
Types of IRAs – Roth IRA vs Roth 401(k) – How to Choose
No matter which option you choose, make sure you do your research and consult with a financial advisor and tax professional to make sure it is the best decision for your individual situation.
Are you looking for a financial advisor? BrokerCheck – Find a broker, investment or financial advisor
How to Open a Spousal IRA
There are a few things to keep in mind if you want to open a spousal IRA:
- You must be married and file a joint tax return.
- Your spouse must have earned income from a job.
- You and your spouse must each have a separate IRA, not a joint Roth IRA.
- In 2023, you can contribute up to $6,500 per year ($7,500 if you are age 50 or older).
Here is a checklist of what you need to do to open a spousal IRA:
- Decide which financial institution you want to open your IRA with. This can be a bank, credit union, brokerage firm, or mutual fund company. See my recent article on the best Roth IRA to open.
- Contact the financial institution and let them know you want to open a spousal IRA, and complete the account opening paperwork (or online process)
- The financial institution will open the spousal IRA, and then give you the options on how to fund the account.
- Once your IRA is open, you will need to make your contributions. You can make contributions for the current year up until April 15th, or the annual tax filing deadline. Be sure to notify the firm of the tax year you intend to make your spousal IRA contribution for!
- You can write a check, link the account to a bank by providing them the account and routing numbers, or transfer money in from your savings.
- Once the account is open and funded, you will want to choose your investments based on your retirement plan, financial goals, and asset allocation model. Read this recent article for a complete guide to asset allocation as well as asset allocation vs. stock selection.
- You will receive a 1099-R form from the financial firm confirming your spousal IRA contribution. You will note your contribution amount and years when you file your taxes with the IRS. Instructions for Form 8606
- BE SURE TO KEEP TRACK OF YOUR SPOUSAL IRA CONTRIBUTIONS THROUGH THE YEARS. There are special tax benefits and advantages of being able to access contributory Roth funds at any time, without penalties or owing income taxes!
FAQ – Spousal Roth IRA
Can I contribute to an IRA if I participate in a 401(k) or other workplace retirement plan?
Can I contribute to my wife’s IRA if I have a 401k? Yes, you can open a spousal Roth IRA if you contribute to a 401(k) at work. If you are married and file taxes jointly, you and your spouse can each contribute up to $6,500 to a Roth IRA for 2023.
- Excess contributions are taxed at 6% per year for each year the excess amounts remain in the IRA. (irs.gov)
- To avoid the 6% tax on excess contributions, you must withdraw: the excess contributions from your IRA by the due date of your individual income tax return (including extensions); and any income earned on the excess contribution. (irs.gov)
- Retirement Topics – IRA Contribution Limits | Internal Revenue Service
- Benefits Planner: Retirement | Retirement Age Calculator | SSA
- How Retirement Readiness Varies by Gender and Family Status: A Retirement Savings Shortfall Assessment of Gen Xers
- Spousal IRAs – Wiser Women
A spousal IRA, or spousal Roth IRA, is an individual retirement account that allows a married couple to contribute to a single retirement account even if only one spouse is working. This can be a beneficial way to save for retirement, especially if one spouse has a higher income than the other. By contributing to a spousal IRA, both spouses can take advantage of the tax benefits associated with an IRA. Additionally, the money in a spousal IRA can be used to provide income for both spouses during retirement.
Conclusion
In conclusion, a spousal IRA can be a valuable tool for couples who want to maximize their retirement savings and take advantage of tax-deferred growth. By contributing to a spousal IRA, the non-working or lower-earning spouse can save for retirement based on the income of the working spouse, allowing for greater potential savings and a more secure financial future.
If you and your spouse are eligible for a spousal IRA, we encourage you to consider this option and consult with a financial professional for personalized advice.
With careful planning and diligent saving, a spousal IRA can help you and your spouse achieve your retirement goals.
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Note: The content provided in this article is for informational purposes only and should not be considered as financial or legal advice. Consult with a professional advisor or accountant for personalized guidance.
