How a Spousal IRA Can Assist {Couples} Save for Retirement


Many people have jobs where they don't earn an income. Think of parents who stay at home.

These people may want to retire one day, but because they have no income, they have no access to traditional pension options such as a 401 (k) or IRA.

If you are married, a marital IRA could be an option.

A spouse IRA circumvents the income requirements by allowing a working and earning spouse to contribute on behalf of the spouse who earns little or no income.

How a spouse IRA works

There is no special account for a spouse IRA. It is just a regular or Roth IRA on behalf of a spouse.

"The term" spouse IRA "really means nothing other than that you take the working spouse's income and use it to contribute to the non-working spouse's IRA," said Jeff Pedersen, a certified financial planner based in Sioux City, Iowa and vice president of private wealth management for Baird. "If you open an account and it is an IRA, it is either a traditional IRA or a Roth IRA. It is not referred to as a spouse IRA."

Each spouse must have their own IRA. You cannot be together.

"All retirement savings accounts cannot be owned together," Pedersen said. "So if someone created one for their spouse, that account is 100% owned by a separate account that belongs to their spouse."

Although the accounts must be separate, the couple can divide the distributions once they reach retirement age. Spouses can also be beneficiaries in the other's account.

To contribute to a spouse's IRA, a couple must submit their taxes as a married joint submission.

"Since you earned income to make this IRA contribution, you can only do so by using your spouse's income for this contribution," Pedersen said. "If you submit separately, there is now no income from the working spouse because no income is shown on a tax form."

If you contribute to traditional IRAs and your adjusted gross income is between certain IRS thresholdsthe amount of the contribution is tax deductible.

For the 2019 and 2020 tax years, a couple can donate $ 12,000 annually ($ 6,000 each) to IRAs if they are under 50 years of age. For these 50 years or older, the contribution limit is $ 14,000, or $ 7,000 each.

The income of the working spouse must equal or exceed the total amount of contributions for both spouses. You cannot contribute more than you deserve.

It is possible to contribute to a spouse's IRA until the tax deadline in April, even if the calendar year has ended.

Why Contribute to a Spouse IRA?

A marital IRA helps accelerate a couple's savings for retirement. The amount of money required to retire depends on the couple's lifestyle.

"For example, suppose you put $ 6,000 a year and earn 6% return. After 25 years, you would end up over $ 330,000," Pedersen said.

Pedersen said there is only one major disadvantage to a spouse's IRA.

"The biggest downside is the fact that with your $ 6,000 you no longer have access to spending it as income," Pedersen said. "But as long as it's something that a person can budget for, it really has no disadvantage."

Tiffani Sherman is a Florida-based freelance reporter with more than 25 years' experience writing about finance, health, travel, and other topics.

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