IRAs are an excellent way to save for your retirement. It allows for tax-free growth and you have a variety of options on how best to invest the money, unlike some personal pension schemes or a 401K.
But IRAs have some requirements.
- You must be within income limits
- You must have an earned income equal to or greater than your contribution.
What that means is that you cannot use income derived from dividends or annuities or the lottery towards your IRA contribution!
But what if you are a stay-at-home mom or dad or if you were laid off or had a baby or myriad other reasons that made working not an option? You too face retirement like everyone else, and you too, have to plan for it. What options do you have?
The good news is you do have an option! It is a little known secret not many are aware of!
You can open what’s unofficially called a Spousal IRA. The IRS doesn’t recognize this term nor is there a Spousal IRA form that you can download and fill! But it exists and allows you to potentially double your IRA contribution even though only one of you is working!
If you didn’t start contributing to your retirement early enough, this is a great way to catch up, provided you meet certain requirements.
What is a Spousal IRA?
For example, Joe and Jane got married last year and decided to have a baby. Jane quit her job and is looking forward to spending time with the baby. Jane can’t contribute to her IRA anymore since she doesn’t have an income now.
That’s where the IRA story from Jane’s perspective, would end for most couples! But… Jane can continue contributing to her IRA from Joe’s earnings! And this is where a smart couple’s story begins!
Though it is Joe’s money, It is Jane’s IRA and Jane will still be the owner. Jane can designate Joe as the beneficiary if she loves Joe as much as Joe loves Jane!
The above was just an example. If your non-working spouse never had an IRA, you can also open a new one.
Can such a couple have two IRAs, one for the working spouse and one, spousal IRA?
Yes! The working spouse can have his/her own IRA and the non-working partner can have one as well, essentially doubling your IRA limits! The working spouse has to make enough to cover the contributions for both.
How Do I Open A Spousal IRA?
Technically there is nothing called a Spousal IRA. The form is the same as the one you would use to open a regular IRA (Roth/Traditional).
Where Can I Open A Spousal IRA
Anyplace where you can open an IRA
What are my options for opening a Spousal IRA?
You can open either a Traditional IRA where your contribution may be tax deductible or a Roth IRA where the contribution is not tax deductible.
Are there any special rules for Spousal IRA?
The same rules that apply to a Roth or a Traditional IRA while filing jointly, applies to Spousal Roth or Traditional IRA.
What are the Spousal IRA limits?
Remember, you must file taxes jointly for all spousal IRAs
Traditional IRA Deductions
If You Are Covered by Retirement Plan at Work
- FULL DEDUCTION: Your modified adjusted gross income(modified AGI) is: $89,000 or less
- PARTIAL DEDUCTION:Your modified adjusted gross income(modified AGI) is: More than $89,000 but less than $109,000
- NO DEDUCTION:Your modified adjusted gross income(modified AGI) is: $109,000 and above
If You Are NOT Covered by Retirement Plan at Work
- FULL DEDUCTION: Your modified adjusted gross income(modified AGI) is: Any amount!
Roth IRA Contributions
- FULL CONTRIBUTION: Your modified adjusted gross income(modified AGI) is: Less than $$167,000
- PARTIAL CONTRIBUTION:Your modified adjusted gross income(modified AGI) is: At least $167,000 but less than $176,000
- NO CONTRIBUTION:Your modified adjusted gross income(modified AGI) is: $176,000 or more
Where can I download a Spousal IRA form?
There isn’t any form called a Spousal IRA form! You either need to get a Roth or a Traditional IRA and designate it as one for the non working spouse.
Do catch up contributions apply to Spousal IRAs?
Yes. If you are over 50, you can make a catch up contribution of $1000 in addition to the maximum of $5000.
Can I contribute to a spousal IRA but not to my IRA?
Strange, but yes!
I’d Like To Learn More About IRAs
Check out the following articles:
10 Most commonly asked questions on Roth IRA
For families with a single income, a Spousal IRA is a good option which has the potential to double your contribution and/or not miss out on the savings and tax-free growth opportunity the non working partner might otherwise miss out when he or she leaves a job. If your spouse is a stay-at-home mom or dad and you can earn and save enough for both your contributions, you should definitely consider contributing to a Spousal IRA.