What's a Spousal IRA?

May 26, 2016
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A common misconception we often hear is that you must have earned income (taxable) to fund an IRA, as though not having earned meant that you were out of luck either beginning or adding to a nest egg.  This is a very costly myth. 

Generally, the only requirement as investor needs to fund an IRA is earned income.  But like most retirement rules, there is an exception.  Married couples that want to boost their household savings, while providing a stay-at-home spouse the ability to build a nest egg, certainly do so.  This arrangement is often referred to as a spousal IRA. 

For those investors who are married, the non-working spouse may be able to make an IRA contribution based on their spouse’s taxable earned income for the year.  For example, spousal IRAs serve well families in which a souse has left the workforce to stay at home with kids or for older investors in which one spouse may have retired early. 

Since IRAs can’t be held jointly, a married couple can contribute the maximum amount to two separate IRAs. As a result, the working spouse can contribute $5,500 to his or her own iRA, and contribute another $5,500 to the IRA in the name of the non-working spouse, for a total of $11,000.  For those who are age 50, or older, the limits are increased to $6,500 for each spouse, for a total of $13,000. 

What you need to know--- You need to consider the following key points: 

  • The IRA will be established, registered and funded under the name and Social Security number of the non-working spouse.
  • All traditional and Roth eligibility rules continue to apply.
  • The non-working spouse is eligible to convert a traditional IRA to a Roth.
  • The couple must be legally married on or before December 31st. If a couple is divorced or legally separated as of December 31st,even if you may have married earlier in the year, you are not eligible.
  • The couple must file married filing jointly.
  • The non-working spouse must be under age 70 ½ in the year of the contribution for a traditional IRA, whereas there is no age limit on a Roth IRA.
  • There is not requirement to contribute to the same type of IRA as the working spouse, assuming all IRA eligibility rules have been satisfied. 

Conclusion 

Over a twenty or thirty time period a spousal IRA can significantly add to a married couples’ retirement nest egg, all with tax advantages during the years money is being saved.

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