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What Is a Spousal IRA? | Investment Advice for Married Couples in 2023

Sometimes a couple may choose to prioritize other important aspects of their lives, such as raising a family, which means one spouse may have to stay at home most of the time.

Having a non-working spouse might have an immediate impact on your finances but it does not have to mess up your retirement savings as well.

A working spouse with an individual retirement account (IRA) has the option of opening a spousal IRA for the non-working spouse.

By including spousal IRA contributions to the retirement plan, a couple can greatly increase the maximum allowed traditional IRA and Roth IRA contributions they can make annually.

With this massive boost in annual contribution limits, a couple’s tax savings efforts for their traditional and Roth IRAs will improve.

If you are married and you wish to learn more about how to make a spousal IRA contribution, you are in the right place. Read on to find out more!

Key Takeaways

Spousal IRA
  • With a spousal IRA, an employed spouse can easily make IRA contributions to the IRA of a nonworking spouse

  • A spousal IRA is simply a Roth IRA or traditional IRA that is designed specifically for married couples

  • Married couples must file a joint tax return to qualify for spousal IRAs

  • In 2022, the maximum contribution limit for a couple filing jointly is $6,000

  • Extra $1,000 catch-up contribution provisions are available for individuals aged 50 and over

What is a Spousal IRA?

If you have a nonworking spouse with little or no income, a spousal IRA provides an option to make annual contributions to their individual retirement account (IRA).

The rules for traditional IRAs and Roth IRA contributions normally require individuals to have been generating earned income to contribute to an IRA. However, a spousal IRA is one way of surpassing that.

However, the rules on contribution and income limits state that the taxable compensation/reported income of the contributing partner must be more than or equal to the total contribution being made for both partners.

Even though a spousal IRA is being funded by a married couple, filing jointly. and making their retirement plans together, it should not be confused with a joint account. The spousal IRA will be in the name of the non-working spouses and treated as a separate account.

Couples that a married filing jointly can make double the number of contributions to their IRA than investors that are filing as single persons.

How Spousal IRAs Work

How Spousal IRAs Work

The most important requirement to qualify for spousal IRAs is that married couples file a joint tax return. Once done, they can opt to open a separate spousal IRA and begin to make annual maximum contributions to that account.

With spousal IRAs, the two accounts will be treated as separate accounts during the contributions stage. However, once the couple reaches retirement age and starts making distributions, these can be done jointly.

Properly managed spousal IRAs permit the account holders to accelerate the rate at which they save money, which is not possible for singles making their own contributions.

Key Considerations

An example of one of the advantages of filing jointly is that while the maximum income limits for single investors is from $73,000 – $83,000 in 2023, for couples that are married filing jointly, it goes up to $116,000 – $136,000.

An IRA investor without an employer-sponsored retirement plan but married to a spouse that has one can further increase these limits to $218,000 – $228,000 in 2023.

The contribution limits of $6,500 and $7,500 for those over 50 have to be made by each half of the married couple before the end of the tax year, or before the deadline for tax filing.

Spousal IRA Rules: Who Qualifies and What Are the Contribution Limits?

Any married couple must file a joint tax returns statement to qualify for spousal IRA contributions. The rules simply state that the working spouse must have earned income that is equal to or more than their intended contributions.

In cases where these income rules are not met, the IRS limits the number of contributions that can be made according to the annual income.

When a married couple decides to contribute to an IRA, the account may be in the form of a Roth IRA or traditional IRA (although the same annual contribution limits apply), as follows:

Traditional IRA

Contributions to a traditional IRA are done on a pre-tax basis and until they are withdrawn in retirement, they will continue to enjoy tax-deferred growth.

Roth IRA

The opposite is true with Roth IRAs where contributions to the account are done on an after-tax basis and will grow tax-free until withdrawals after retirement.

Important Things To Remember

Remember the following about Spousal IRA rules:

  • Funding an IRA for your spouse does not mean you become the owner because it will be in the name of your partner and under their control

  • There is no age limit when it comes to spousal IRAs, which means you can make contributions for as long as you want

  • You should pay particular attention to the IRS rules on contribution limits to the account to avoid being penalized

  • Tax benefits and tax deductions for spousal IRA are the same as an ordinary traditional IRA or Roth IRA and are based on the working spouse’s income tax rates

  • Having a workplace retirement plan will greatly increase the income limits for the spousal IRAs

  • Also Read:  Rules for Gold IRAS

Filing a Joint Tax Return

When opening a Spousal individual retirement account, the most important thing to remember is that you need to file joint tax returns with your partner, otherwise your account will be regarded as an ordinary traditional or Roth IRA, without the added benefits that married couples can enjoy.

Add a Spousal IRA to Your Retirement Plan Today!

There are many options available to married couples that want to invest for their retirement. However, some of these options may be hindered by the fact that one of the couples is not working.

In that case, opening an IRA for your spouse may be the best option you have. With lots of tax benefits and high contribution limits, you and your partner can quickly grow your retirement portfolios over a short period.