What is a Spousal IRA?
A spousal IRA allows a non-working spouse (who doesn’t have earned income) to contribute to an IRA based on their working spouse’s earned income.
There are a lot of rules for contributing to IRAs, but the most basic requirement is that the account owner has earned income in an amount equal to or larger than the amount of their contribution in a given tax year.
In other words, if you don’t have taxable income from a job or business, you can’t contribute to an IRA.
There is one exception though.
A non-working spouse is eligible to make contributions to their IRA as long as…
- The working spouse’s income is equal to or exceeds the cumulative total of IRA contributions by both spouses, and
- The couple’s taxes are submitted as married filing jointly.
This is called a Spousal IRA and it’s a perfectly legal and wise way to ensure that a non-working spouse is still able to save for retirement despite not having a taxable income.
Limitations
The contribution limits for spousal IRAs are no different than regular IRA contributions.
In 2023, the maximum contribution is $6,500 ($7,500 if 50 or older) per person.
The income restrictions are the same too if the working spouse isn’t covered by an employer-sponsored retirement plan. The phase-out range for contributions begins at $218,000 and tops out at $228,000.
However, if the working spouse is covered by an employer-sponsored retirement plan the income phase-out begins at $116,000 and tops out at $136,000. This is considerably lower than the applicable limits for couples that have two working spouses.
How to Contribute
First off, a “spousal” IRA is just an IRA. It’s the contribution that has special treatment, not the account.
So, if the non-working spouse already has an IRA, he or she can just contribute to it as usual.
Contributions to spousal IRAs can also be made on a traditional or Roth basis.
Basically, the non-working spouse gets to treat their contribution just like they would if they were working.
It’s also worth noting that the IRA remains in the name of the non-working spouse. It’s theirs and will always be treated as their own IRA until their death.
Conclusion
In most households where only one spouse works, a conscious decision has been made to prioritize family or lifestyle over income.
As a result, many couples with a single income aren’t blessed with enough residual income to double-stuff their IRAs.
However, if the circumstances are right a spousal IRA can be a very useful retirement saving tool. Even if you aren’t able to use it now, keep this rule in mind in case it may benefit you one day.
