Overview and Legal Background
A Spousal IRA was established by U.S. tax law to help married couples save for retirement when one spouse lacks sufficient earned income or stays out of the workforce entirely. Before its introduction in 1986, the non-working spouse typically could not contribute to an IRA unless they had their own reported earned income. The Spousal IRA rule enables the working spouse to contribute to an IRA in their spouse’s name, thus doubling the couple’s tax-advantaged retirement savings potential.
Eligibility Requirements
To qualify for a Spousal IRA:
- The couple must be legally married and file their federal taxes jointly.
- The working spouse must have enough earned income to cover contributions made to both IRAs.
- The non-working or low-income spouse must be under age 70½ for Traditional IRAs. There is no age limit for Roth IRAs contributions.
Contribution Limits for 2024
As per the IRS for the 2024 tax year, each spouse can contribute up to $6,500 annually to their IRA, or $7,500 if age 50 or older due to catch-up contributions. This means a couple can contribute a combined $13,000, or $15,000 if both spouses qualify for catch-up contributions. However, total contributions cannot exceed the working spouse’s earned income.
Types of IRAs Applicable
The non-working spouse may have either a Traditional IRA or a Roth IRA:
- Traditional IRA: Contributions may be tax-deductible depending on the couple’s Modified Adjusted Gross Income (MAGI) and whether either spouse is covered by a workplace retirement plan. Withdrawals are taxed as ordinary income in retirement.
- Roth IRA: Contributions are made with after-tax dollars and are generally not deductible. Qualified withdrawals are tax-free. Income limits apply to Roth IRA eligibility.
Tax and Retirement Benefits
Opening a Spousal IRA effectively doubles a couple’s potential retirement savings in tax-advantaged accounts, helping build a larger nest egg over time. Traditional IRA contributions may reduce current taxable income, while Roth IRAs provide tax-free growth and withdrawals.
Example
Suppose Jane does not work outside the home while Mark earns $80,000 per year. With a Spousal IRA, Mark can contribute $6,500 to his IRA and an additional $6,500 to Jane’s IRA in 2024. This allows them to invest $13,000 in retirement savings with associated tax benefits.
Important Considerations and Common Mistakes
- Remember, only one spouse must have earned income for both contributions.
- Filing jointly is essential to qualify for a Spousal IRA.
- Avoid exceeding total earned income or IRS annual contribution limits to prevent penalties.
- Roth IRA contributions are subject to income phase-out limits; verify eligibility.
- Contributions can be made up until the tax filing deadline (generally April 15 of the following year).
Frequently Asked Questions
Can a part-time earning spouse still use a Spousal IRA? Yes, if the spouse has earned income, they can contribute on their own behalf, and the working spouse can contribute for the other spouse, so long as total contributions don’t exceed earned income.
Is a Spousal IRA contribution considered a gift? No, it is a legal joint contribution based on combined income, not a gift between spouses.
What happens to the Spousal IRA if the couple divorces? The IRA remains the property of the spouse in whose name it was opened. Divorce settlement agreements may impact ownership or division.
2024 Contribution Limits Summary
| IRA Type | Under Age 50 | Age 50 or Older | Earned Income Required | Tax Deductible? |
|---|---|---|---|---|
| Traditional IRA | $6,500 | $7,500 | Yes | Depends on MAGI and plan coverage |
| Roth IRA | $6,500 | $7,500 | Yes | Contributions nondeductible; withdrawals tax-free |
Additional Resources
Learn more about the Traditional IRA and Roth IRA options on FinHelp. For detailed IRS guidelines, visit the official IRS Spousal IRA rules page.
Conclusion
A Spousal IRA is a valuable retirement savings strategy that allows married couples to enhance their financial security by utilizing the working spouse’s income to fund two tax-advantaged accounts. Proper understanding of eligibility, IRS limits, and tax implications ensures couples maximize the benefits of this option for their retirement planning.
Sources:
- IRS Publication on Spousal IRA contributions
- IRS Retirement Topics – IRA Contribution Limits
This article is designed to provide clear and practical information about Spousal IRAs to help married couples plan their retirement savings effectively.