Here’s What Couples Need to Know About Spousal IRAs


With Valentine’s Day around the corner, couples everywhere are gearing up to impress their partners. Buckling down on finances may not be the first things that comes to mind, but maximizing savings for retirement can be a joint effort for married couples who are ready for that phase in their life. Even if one of the spouses is not working, there is an option a lot of married couples are not taking advantage of and that is the spousal IRA contribution.

One of the requirements for making an IRA contribution requires that the individual have earned income. What if a married couple only has one wage earner or what if one of the spouses personally does not have enough earned income? The law states that for married couples who are filing a joint tax return, the income is considered “earned” by both spouses. This means that even if one of the spouses does not have earned income or not enough earned income, as long as the income on the return is enough to support making a contribution to each individual’s IRA, they can use their combined income to satisfy this requirement. The other rules still apply however, only in determining which IRA is best for each spouse and what IRA they could be eligible for. Let’s quickly review those rules for couples:

Traditional IRAs

Eligibility requirements for making a Traditional IRA contribution are that the individual must be under the age of 70 ½ in the year for which the contribution is being made. They must have earned income as well. The maximum contribution for an individual under the age of 50 is $5,500 and for someone age 50 and over the maximum is $6,500 for 2016 and 2017. Their level of earned income can reduce what they are eligible for.

As an example, if the individual’s earned income is only $5,000, they may not make the full contribution limit for the year. This is where the spousal contribution rules help maximize the couple’s opportunity. If the couple files a joint tax return and their combined level of income is enough, they will be eligible to make the full contribution limit for the year for each person. Another issue is deductibility. In some cases where there’s only one wage earner, the wage earner may be the only one eligible to participate in their employer’s retirement plan. By participating in the employer’s retirement plan, it may limit that individual’s opportunity to use their Traditional IRA contribution as a tax deduction. Their level of Modified Adjusted Gross Income (MAGI) depends on whether or not the employer plan participating spouse can use their contribution as a tax deduction.

When making a spousal contribution, the level of compensation used to determine whether the non-participating spouse can use their contribution is much higher, therefore it could allow that spouse to not only contribute, but also use the contribution as a tax-deduction. In this scenario, one may not be able to use their contribution as a tax deduction and the other can. It is good to note that when making an IRA contribution (spousal or not), each individual must establish their own IRA separately.

Roth IRAs

Now let’s look at Roth IRAs, and use the same scenario as the example above. Since the participating spouse may not be able to use their Traditional IRA as a tax deduction, they may want to consider making their contribution to a Roth IRA instead. Since Roth IRA contributions may not be used as a tax deduction already, this may be more advantageous since eventual distributions from the Roth IRA are tax-free. However, Roth IRA eligibility requirements impose a maximum income limit to determine their eligibility to contribution. One of the biggest benefits on the Roth IRA is that age is not a factor. As an example, a couple has one of the spouses still working and under the age of 70 ½, however, the other spouse is retired and is over the age of 70 ½. The spouse retired and over the age of 70 ½ may still make a Roth IRA contribution as long as the couple is married and files a joint tax return and their combined income does not exceed the limits to make a contribution to the Roth IRA.

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