Financial Advisor in Raleigh NC: Spousal IRA
A spousal IRA allows a working partner to open an individual retirement account (IRA) for a non-working spouse to save for retirement. That can be especially beneficial in times of economic upheaval, where one spouse is out of work or has limited earnings. It can also be advantageous for ensuring that a stay-at-home spouse builds up a nest egg for the future.
How a Spousal IRA Works
Typically, only working individuals can contribute to an IRA, according to the IRS contribution limits. However, there is an exception to the rule for married couples. Spousal IRAs permit a working spouse to put money aside for retirement for a non-working spouse with tax-free or tax-deferred growth, or both.
The spousal IRA can be a powerful tool for married couples to build wealth as the working spouse doubles the couple’s tax-savings efforts. For example, a combined annual contribution of $12,000 over 30 years at a 5 percent compound return can amount to over $800,000 in retirement savings.
Individual retirement accounts opened under the spousal IRA rules are not co-owned. The working spouse and the non-working spouse each own IRAs under their own names. They can be accounts each spouse opened before they were married, while they were married and both working, or one that the non-working spouse opened when he or she was not working.
Spousal IRA Rules
There are a number of important rules to remember about spousal IRAs:
The account owner does not change, no matter who funds the account. When contributing to spousal IRAs, each spouse remains the named account owner of their IRA, independent of where the contributions come from. Decisions about asset allocation, beneficiaries and withdrawals belong solely to the spouse who owns the IRA.
Married couples must file a joint tax return to be eligible. Couples who file their taxes separately are not eligible for spousal IRA contributions.
There is no age limit on spousal IRA contributions. As long as at least one member of the couple is earning income, you can contribute to your IRA no matter how old you are.
Total marital income is considered for Roth IRA contribution limits. Direct contributions to a Roth IRA are limited by maximum income thresholds.
Bottom line
The spousal IRA is the lone exception to the rule that you must have earned income to contribute to an IRA. As a result, it’s a valuable investment strategy for getting non-working spouses access to a retirement plan, whether they’re out of the workforce for a few months, years, or indefinitely.
Sources
https://www.forbes.com/advisor/retirement/spousal-ira/
https://www.fidelity.com/insights/retirement/spousal-ira-wealth
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