A spousal IRA is an arrangement that allows a working spouse to open an IRA — Roth or traditional — in the name of a non-working, or low-income, spouse. The working spouse contributes to the two IRAs from their own income while both IRAs are independently owned by each partner. It’s important to consider a spousal IRA’s rules, how to open one, and the benefits it can offer.
- Written By Marguerita M. Cheng, CFP®, CRPC®, RICP®
Marguerita M. Cheng, CFP®, CRPC®, RICP®
Chief Executive Officer of Blue Ocean Global Wealth
Marguerita M. Cheng, CFP®, CRPC®, RICP®, is the chief executive officer at Blue Ocean Global Wealth. As a Certified Financial Planner Board of Standards Ambassador, Marguerita educates the public, policymakers and media about the benefits of competent and ethical financial planning. She is a past spokesperson for the AARP Financial Freedom campaign.Read More
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- Updated: September 6, 2022
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What Is a Spousal IRA?
Simply put, a spousal IRA allows a working spouse to set up an IRA for a non-income or low-income spouse. In essence, there are two IRA accounts — a traditional IRA and a Roth IRA — one for each spouse, funded by the income of the working spouse.
When married couples plan for retirement, they must do so with their spouses in mind. The goal of these IRAs is to ensure that both individuals save enough to live comfortably in their golden years.
It’s good to note that while spousal IRAs are typically used for a non-working spouse, it doesn’t require the other spouse to not work. The non-contributing spouse may simply be earning little income or the contributing spouse earns enough to take up the responsibility for retirement funds, regardless of the income of the non-contributing spouse.
It is, therefore, more appropriate to call the spouse who is funding the IRA the “contributing spouse” and the other spouse the “non-contributing spouse.”
The two IRAs account are independent of one another — The IRA account of the non-contributing spouse is not owned by the contributing spouse. Each spouse has complete control of his or her own account. This means the IRA account of the non-contributing spouse is not co-owned by the other spouse.
For a couple to use a spousal IRA, they must meet certain criteria.
- The couple must be filing joint tax returns. While the two IRAs are not co-owned, for them to exist, the spouses must be filing their tax returns jointly.
- The income of the contributing spouse must exceed or be equal to the total IRA contributions made on behalf of both spouses. For example, if both spouses are contributing $5,000 each to their IRAs, then the contributing spouse must be earning at least $10,000 every year.
How Spousal IRAs Work
Spousal IRAs allow both spouses to contribute to a traditional or Roth IRA from a single income.
Let’s illustrate with an example of Mr. and Mrs. James, who are jointly filing tax returns. Mr. James is working and earning $50,000 every year while Mrs. James is a full-time stay-at-home parent.
Though Mrs. James does not earn income as a full-time stay-at-home parent, Mr. James can open an IRA for her, as well as for himself. They can both decide to fund each IRA with $5,000 every year from Mr. James’ salary, which is $50,000. Both Mr. and Mrs. James will operate their IRA independently, with both spouses responsible for the operation of their accounts — even if they take counsel or advice from the other party.
Spousal IRA Contribution Limits
Both IRAs are subject to the same contribution limits as other IRAs. For 2022, there is a $6,000 contribution limit for individuals below 50 years old and a limit of $7,000 for individuals above 50 years old.
Consequently, the contributing spouse in a spousal IRA cannot contribute more than a total of $12,000 if they are both below 50, $13,000 if one is above 50 or $14,000 if they are both above 50.
Spousal IRA Deduction Limits
For a spousal Roth IRA, contributions aren’t tax deductible, but withdrawals will be made tax free. On the other hand, both contributions and withdrawals are tax deductible for a spousal traditional IRA.
In the latter case, however, there are IRS rules regarding how much couples can deduct for tax purposes.
- If neither spouse has a retirement plan at work, such as a 401(k), they can deduct all contributions for tax purposes.
- If the contributing spouse has a retirement plan at work, then they can deduct all contributions for tax purposes if the annual income of the contributing spouse is less than $109,000. If the income is between $109,000 and $129,000, then they can only deduct a portion of their contributions. If the income exceeds $129,000, then there will be no deduction.
- If the non-contributing spouse is working and has a retirement plan at work, then they can deduct all contributions if the annual income of the spouse contributing to the IRAs is less than $204,000. They can only deduct a portion of their contributions if the income is between $204,000 and $214,000. And if the income exceeds $214,000, there is no deduction.
What Situations Do a Spousal IRA Make Sense?
Spousal IRAs make sense for married couples with a single income. They allow you to increase your savings towards retirement in the situation where one spouse is not working or earns little income.
Without a spousal IRA, the total contribution of a working spouse is limited to $6,000 or $7,000. However, with a spousal IRA, the total contribution can rise to $12,000 to $14,000 regardless of the employment status or income level of the other spouse.
The ability to contribute an extra $6,000 or $7,000 towards your retirement is an opportunity to enjoy the benefits of tax-deferred or tax-free growth and save more for retirement within a shorter amount of time.
How to Open a Spousal IRA
Opening a spousal IRA is as simple as opening a standard traditional or Roth IRA. You can open such accounts with a brokerage company, robo-advisor, credit union, savings and loans association, or any other IRS-approved financial institution that offers them.
Compare various institutions and choose the one that offers the best value for money. But as with any other financial decisions, be sure to consult with your financial advisor or tax professional before making a decision.
4 Cited Research Articles
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- Internal Revenue Service. (2022, February 22). Publication 590-A (2021), Contributions to Individual Retirement Arrangements (IRAs). Retrieved from Publication 590-A (2021), Contributions to Individual Retirement Arrangements (IRAs) | Internal Revenue Service (irs.gov)
- Internal Revenue Service. (2021, November 27). Retirement Topics - IRA Contribution Limits. Retrieved from Retirement Topics - IRA Contribution Limits | Internal Revenue Service (irs.gov).
- Internal Revenue Service. (2021, November 5). Amount of Roth IRA Contributions That You Can Make for 2022. Retrieved from Amount of Roth IRA Contributions That You Can Make for 2022 | Internal Revenue Service (irs.gov)
- Internal Revenue Service. (2021, November 4). IRS announces 401(k) limit increases to $20,500. Retrieved from IRS announces 401(k) limit increases to $20,500 | Internal Revenue Service.