Spousal IRA: What Is It and How To Open One
Individual retirement accounts offer a way to build tax-advantaged retirement savings if you don’t have a company-sponsored retirement plan or if you want to complement your company plan. In most cases, you need earned income to contribute to an IRA. However, a spousal IRA lets you work around that rule.
Spousal IRAs can provide a big retirement boost to couples with only one income. Keep reading to learn what a spousal IRA is, how it works, some of the rules and how to open one.
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What Is a Spousal IRA?
A spousal IRA is a retirement account that offers tax benefits and allows a working spouse to contribute to the retirement savings of a non-working spouse. This can help one-income couples build savings faster. Normally, an IRA account holder must have earned income to contribute to the account, but this rule is waived with spousal IRAs.
Spouses who don’t earn income can contribute to a spousal IRA as long as they file joint taxes with the income-earning spouse. A spousal IRA can be a traditional or Roth IRA. In either case, it’s a regular IRA that gives nonworking spouses access to the same tax advantages and benefits of all IRAs.
How Does a Spousal IRA Work?
Spousal IRAs follow the same guidelines as traditional and Roth IRAs. With a traditional IRA, contributions are made with pre-tax dollars and grow tax-deferred until you withdraw them. Roth IRA contributions are made with after-tax dollars and can be withdrawn tax-free.
To qualify for a spousal IRA, a couple must be married and file taxes jointly. Both spouses can contribute to the account according to IRS rules, but with a spousal IRA, there is only one legal account holder. If the spousal IRA is in your name, you are the legal owner regardless of who makes the contributions.
How You Can Open a Spousal IRA
Opening a spousal IRA works the same as other IRAs. You can open one with any bank, credit union, broker, robo-advisor or other financial institution that offers IRAs. As with most financial accounts, you’ll need to provide some personal information such as your name, birthdate and Social Security number. You might also need to make a minimum opening deposit.
After the account is opened, you can contribute up to the maximum yearly limit set by the IRS. IRAs let you choose your own investments, such as stocks, bonds and mutual funds. You can also decide how to allocate each investment.
Spousal IRA Rules
Spousal IRAs follow the same IRS rules that apply to all IRAs, including contribution and income limits. Here are some things to know:
You must file taxes as “married filing jointly.”
You must meet IRS contribution limits governing IRAs.
You must meet IRS income limits governing IRAs.
If you or your spouse have a 401(k) or other employer-sponsored retirement plan, you might not be able to deduct some or all of your IRA contributions when you file your federal tax return.
The spousal IRA can only be in the name of one spouse, who is also the owner. It is not a joint account co-owned by both spouses.
For more information on 2024 IRA contribution and income limits, visit this IRS site.
Advantages of Spousal IRAs
The main benefit of a spousal IRA is that it lets both spouses invest in an IRA, which effectively doubles the contributions and savings. This is a big advantage for couples where only one spouse earns income. In 2024, this means you can save $14,000 for the year rather than only $7,000.
As with any IRA, you also get tax benefits. These come in the form of tax-deferred savings with a traditional IRA or tax-free withdrawals with a Roth IRA. In some cases, you might be able to deduct IRA contributions from your income tax returns.
Tips for Maximizing Spousal IRAs
The best way to maximize your spousal IRA is for both spouses to contribute up to the maximum each year. In 2024, each spouse can contribute up to $7,000 for a total of $14,000, according to the IRS. Spouses 50 and older can make an additional “catch-up” contribution of $1,000 each, meaning the combined limit rises to $16,000 a year.
Here are some other ways to maximize your spousal IRA:
Saver’s Credit: Spousal IRAs allow you to claim the Retirement Savings Contribution Credit, also known as the Saver’s Credit. According to financial services firm Empower, this credit is available to individuals who are 18 years old or older, cannot be claimed as dependents on someone else’s tax return and aren’t students.
Investments: As with any IRA, choosing the right mix of investments can help you maximize your spousal IRA. The best strategy is to diversify your allocations to include stocks, bonds and funds, but the percentage you put toward each varies depending on your age. Younger couples with more time to recoup losses can tilt toward higher-risk, higher return stocks, while older couples might lean toward safer investments such as bonds and certificates of deposit.
FAQ
Here are the answers to some of the most frequently asked questions about spousal IRAs.
What is a spousal IRA and who can contribute to it?
A spousal IRA is a retirement account that offers tax benefits and allows a working spouse to contribute to the retirement savings of a non-working spouse. Both spouses can contribute to the account but only one can be listed as the owner.
What are the contribution limits for spousal IRAs?
In 2024, the annual IRA contribution limit is $7,000 for each spouse, or $8,000 if you are age 50 or older.
Can both spouses contribute to their IRAs as well as a spousal IRA?
There's nothing preventing either spouse from having multiple IRAs. However, your annual contributions are limited to the IRS maximum across all of the accounts.
Are there income limits for contributing to a spousal IRA?
For couples who file their taxes as "married filing jointly," your Modified Adjusted Gross Income (MAGI) must be less than $240,000 for tax year 2024.
This article originally appeared on GOBankingRates.com: Spousal IRA: What Is It and How To Open One
