An IRA, or individual retirement account, is a way to build retirement savings if you don’t have a 401k plan offered through work, if you want to diversify your retirement savings with an additional account, or if you want an account that will remain constant even if you change jobs.
You can contribute to an IRA if you earn income from a job or from running your own business, and under certain circumstances, you can even fund an IRA if you’re not working at all. One such circumstance is opening a spousal IRA. Spousal IRAs allow a working spouse to contribute to an IRA on behalf of a non-working spouse.
If you haven’t heard of spousal IRAs, or if you have and you’re not sure how they work, check out the rest of this guide. We’ll cover these topics:
Let’s start with a simple spousal IRA definition.
What is a spousal IRA?
As previously mentioned, spousal IRAs allow a working spouse to contribute to the retirement of a non-working spouse through an IRA. For example, many couples agree that one spouse will stay home with the children while the other one works. In that case the stay-at-home spouse probably won’t have an active 401k plan, and they might not be eligible to contribute to their own IRA.
Thus, the current law allows the non-earning spouse to contribute to an IRA under certain conditions. One rule the IRS emphasizes is that your spousal IRA contributions cannot be greater than whichever total is smaller: your combined taxable income, or the annual IRA contribution limits: $6,000 for the year 2022, or $7,000 for savers age 50 and older.
That means your total combined IRA contributions cannot be greater than $12,000. If you are older than 50, that increases to $13,000, and if you and your spouse are both over 50, then it increases to $14,000. An easy way to remember it is that the working spouse’s contributions to the non-working spouse’s IRA simply replace what the non-working spouse’s contributions would be if they were working.
You can open two different forms of spousal IRA:
- Traditional IRA: Traditional IRAs allow you to deposit money and then deduct your contributions on your taxes for that year. However, once you retire and begin withdrawing funds from the account, they are taxed as regular income.
- Roth IRA: This type of IRA allows you to deposit post-tax income, and contributions are not tax-deductible. However, your withdrawals post-retirement will not be taxed as income.
How to open a spousal IRA
Spousal IRAs can be a great way for married couples to increase their retirement savings and plan together for their future. If you have a spouse who doesn’t work, or are a spouse who doesn’t work, you might be wondering how to open a spousal IRA.
The good news is that it’s as simple as opening a normal IRA account—because it is a normal IRA account. You can open a spousal IRA at your favored brokerage or robo-advisor. Simply make an account, provide the required information and funding account (like your checking or savings) and choose how often and how much you want to contribute.
- Note: In order to make a spousal IRA, the IRS requires that you and your spouse file joint returns.
Benefits of a spousal IRA
Spousal IRAs are a great option for couples to plan for their future together while taking advantage of the investing opportunities present in IRAs, like mutual funds, ETFs, and other stocks and bonds. IRAs allow you to slowly and steadily grow savings while taking advantage of the power of compound interest.
Married couples relying on only one income earner might struggle to save enough for retirement if they are held back by the annual contribution limits that apply to IRAs. By having two separate accounts, couples are able to effectively double the amount they are permitted to save, making it easier to adequately plan for both individual’s expenses and needs once they retire.
Important factors to keep in mind
If you are interested in opening a spousal IRA, there are a few tax rules and policies it’s good to be aware of. Here’s what you need to know:
- Your earned income must be at least as great as your total contributions. If you are contributing to IRAs for yourself and your spouse, your income must equal or exceed the amount of your contributions.
- If you and/or your spouse are under the age of 50, you can each contribute up to $6,000 in 2022 ($6,500 for 2023), assuming your income is at least that much. If you are at least 50, you can contribute as much as $7,000 for 2022 ($7,500 for 2023).
- You can make a 2022 contribution to your traditional IRA up until the tax deadline. Also, you might be able to take a tax deduction on your 2022 taxes but be sure to tell your plan administrator that your contribution is for 2022.
- Your IRA contribution may not be fully deductible. If neither you nor your spouse is covered by an employer-sponsored retirement plan, these rules do not apply to you. However, if the working spouse is covered by a retirement plan at work, then your combined income must be $109,000 or less in 2022 ($116,000 or less in 2023) for you to get a full deduction for your contributions. You can earn up to $129,000 in 2022 ($136,000 in 2023) and get a partial deduction, but if your combined income is $129,000 or more in 2022 ($136,000 in 2023), your IRA contributions are not deductible.
- If you’d like to contribute to a non-deductible Roth IRA, your combined income must be under $214,000 in 2022 ($228,000 in 2023). For traditional IRAs, there is no similar compensation limit.
- If you make nondeductible contributions to your IRA, when you retire you’ll be able to recoup those deductions tax-free, since you didn’t get a deduction for them when they were made.
Spousal IRA Key Takeaways
Here’s what to remember before you go:
- Spousal IRAs are either traditional or Roth IRAs that married couples can use to plan their retirements together.
- Contribution limits that apply to personal IRAs also apply to spousal IRAs, and so do a few more tax rules; the limit for both IRAs is essentially two times the limit for a single IRA.
- You can open a spousal IRA with a traditional broker or a robo-advisor.
- Spousal IRAs make it easier to plan to have enough money saved for both individuals once they retire.
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