A spousal individual retirement account (IRA) allows couples with one income earner to maximize retirement savings. The spousal IRA contribution permits the working spouse to contribute to an IRA on behalf of the non-working spouse. Essentially, this spousal allowance gives you the option to double your retirement contributions. Here’s what you should know about making spousal IRA contributions.
Spousal IRA contribution rules
Individuals who are unemployed or bring in a minimal wage usually are not eligible to contribute to an IRA. However, there is an exception that applies if you meet the following requirements:
- You are married to someone who is employed.
- You file a joint income tax return.
- You or your working spouse have compensation or earned income equal to or greater than the amount you contribute to your IRA.
In this case, the IRS allows the employed spouse to make contributions to an IRA on behalf of the unemployed or low-income spouse. These are known as spousal IRA contributions. These contributions can be made to two main types of IRAs, each with their own limits: traditional IRAs and Roth IRAs.
Spousal contributions for traditional IRAs vs. Roth IRAs
When considering spousal IRA contributions, it’s important to understand the differences between traditional IRAs and Roth IRAs. A traditional IRA is an individual retirement account that allows you to contribute earnings before taxes are taken out. This allows you to invest more money to grow over time. Capital gains or dividend income taxes are only assessed when you make a withdrawal. Depending on your income, the traditional IRA may even be tax-deductible. The two primary factors that determine your eligibility to make contributions include:
- Contribution limits: Individuals are limited to an annual contribution of $7,000 to their IRA. For those age 50 or above, this limit increases to $8,000 per year. This contribution limit applies individually, so for a couple, the combined total contribution could be up to $14,000, or $16,000 if both are 50 or older.
- Income limits: There are no income limits to be eligible to contribute to a traditional IRA.
The difference between a traditional IRA and a Roth IRA is how they are taxed. A traditional IRA permits contributions of pre-tax income, whereas a Roth IRA involves contributions made with income that has already been taxed.
When you contribute to the IRA using income that has already been taxed, you won’t have to pay taxes on any profits from those investments. At retirement, you can withdraw funds without any income taxes. While the contribution limits are similar to traditional IRAs, there are income caps to consider:
- Contribution limits: Same as limits for traditional IRAs.
- Income limits: For 2024, those who are married and file a joint tax return can contribute up to the annual contribution limit if their combined modified adjusted gross income (MAGI) is less than $230,000. The contribution limit begins to phase out if the combined MAGI is more than $230,000 and phases out completely at $240,000.
Spousal IRA contributions for non-working spouses
The IRS sets limits on how much can be contributed annually to an IRA, which applies equally to the non-working spouse’s contribution. However, the working spouse’s income must be equal to or greater than the total contributed to both IRAs.
For example, if the couple wants to contribute the maximum of $7,000 to each of their IRAs, the working spouse must have earned income of at least $14,000 for the year.
What if you’re set up for retirement through work?
If you do not have an employer-sponsored retirement plan such as a 401(k), you are eligible to deduct the full amount of your spousal IRA contribution. If you do have an employer-sponsored plan, and you’re still filing jointly, the income threshold for deducting the contribution is $123,000 to $143,000.
So, if you’re legally married and looking to boost your savings efforts to the fullest possible limit, consider filing your taxes jointly and making spousal IRA contributions.
Spousal IRA contribution FAQs
Do you have more questions about spousal IRA contributions? We’ve got you covered with quick answers to the most frequently asked questions about spousal IRA contribution rules.
Is a spousal IRA different than a regular IRA?
Functionally, a spousal IRA isn’t different from a regular IRA in terms of structure or investment options. Spousal IRA contributions allow a working spouse to contribute to an IRA on behalf of a non-working spouse, ensuring both can save for retirement. The only difference is that the working spouse’s income, instead of the account holder’s, determines the contribution limits.
Are spousal IRA contributions tax deductible?
Yes, spousal IRA contributions may be tax-deductible. However, there are several factors that influence deduction eligibility including your filing status, income, and whether you or your spouse have an employee-sponsored retirement plan.
Is there an age limit on spousal IRA contributions?
There is no age limit for contributing to a spousal IRA as long as you or your spouse have earned income.
Can I contribute to my spouse’s IRA if they don’t work?
Yes, the spousal IRA contribution was designed for this scenario. This contribution type allows the working spouse to contribute to their spouse’s IRA, even if they do not work.
Can I contribute to my IRA if I’m not working?
If you are not working and do not have any earned income, you typically cannot contribute to your own IRA. However, if your spouse is working and you file a joint tax return, you can benefit from a spousal IRA contribution made in your name.
