What is a Spousal IRA and Why Should You Open One?

 A spousal IRA is a strategy that allows a working spouse to contribute to an Individual Retirement Account (IRA) for a non-working or low-income spouse. This is an exception to the rule that you need income to contribute to an IRA. However, the working spouse's income must be equal to or greater than the total IRA contribution amount for both spouses.

A spousal IRA is the same as a regular Roth IRA or traditional IRA, designed for married couples. It is not a joint account, but an individual account opened in each spouse's name. In 2024, couples can contribute up to $14,000 per year to an IRA using the spousal IRA strategy. If both spouses are 50 or older, they can contribute up to $16,000 per year due to the catch-up contribution provision.

What are the benefits of a spousal IRA? Why should you open one? In this article, I will explain the concept and types of spousal IRA, contribution limits, tax benefits, and how to open one.

The concept and types of spousal IRA

A spousal IRA is a way to save for retirement even if one spouse does not work or has little income. The working spouse can contribute to an IRA for the non-working spouse. This way, both spouses can enjoy the tax benefits of an IRA and secure more income for retirement.

A spousal IRA can be opened as a regular IRA, either as a Roth IRA or a traditional IRA. A Roth IRA allows you to contribute with post-tax income and not pay taxes when you withdraw. A traditional IRA allows you to contribute with pre-tax income and pay taxes when you withdraw. Depending on your income level and tax situation, you can decide which type of IRA is more advantageous for you.

The contribution limits and tax benefits of spousal IRA

The amount you can contribute to a spousal IRA is the same as the annual limit for a regular IRA. In 2024, you can contribute up to $7,000 per year ($8,000 if you are 50 or older). In 2023, you can contribute up to $6,000 per year ($7,000 if you are 50 or older).

Contributing to a spousal IRA can give you tax benefits depending on the working spouse's income. For a Roth IRA, you can only contribute if the working spouse's modified adjusted gross income (MAGI) is below a certain amount. In 2024, it is $214,000 for married couples filing jointly and $10,000 for married couples filing separately. In 2023, it is $208,000 for married couples filing jointly and $10,000 for married couples filing separately.

For a traditional IRA, you can contribute regardless of the working spouse's income, but to get a tax deduction, the working spouse must not participate in a retirement plan offered by the employer. If the working spouse participates in an employer-sponsored retirement plan, you can get a tax deduction only if the working spouse's MAGI is below a certain amount. In 2024, it is $129,000 for married couples filing jointly and $10,000 for married couples filing separately. In 2023, it is $125,000 for married couples filing jointly and $10,000 for married couples filing separately.

How to open a spousal IRA

To open a spousal IRA, you must first be a married couple filing jointly. And the working spouse's income must be equal to or greater than the total IRA contribution amount for both spouses. For example, in 2024, if both spouses are 50 or older and the working spouse's income is $15,000, then each spouse can contribute $7,500 to their IRA. If the working spouse's income is $10,000, then each spouse can contribute $5,000 to their IRA.

A spousal IRA can be opened as a regular IRA at a bank, brokerage, credit union, etc. You open an individual account in each spouse's name and choose the type of IRA you want, either Roth IRA or traditional IRA. And you contribute to both accounts with the working spouse's income. The contribution amount must be indicated on the tax return.

Conclusion

A spousal IRA is a strategy that allows a working spouse to contribute to an IRA for a non-working or low-income spouse. This allows both spouses to enjoy the tax benefits of an IRA and secure more income for retirement. A spousal IRA is the same as a regular Roth IRA or traditional IRA, and is designed for married couples filing jointly.

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