Spousal IRA

Generally, you can only contribute to an individual retirement account (IRA) if you have earned income. But a spousal IRA lets you get around this regulation if one spouse has little or no earned income.

Earned income includes wages, salaries, tips and other taxable income you earn.

You are eligible for a spousal IRA if you file a joint tax return and one spouse reports earned income, but the other spouse has little or no earned income.

The couple can contribute money to a spousal IRA for the partner without earned income.

In addition to the tax advantages of socking away retirement savings for a spouse, spousal IRAs can be an important part of retirement planning for a spouse outside the workforce, or a spouse who take breaks from the workforce to raise their children as stay at home parents.

This situation tends to affect women disproportionately when it comes to retirement savings. The Employment Benefits Research Institute has found that women typically have much lower average IRA balances than men have.

Maintaining a spousal IRA can help fill in retirement savings gaps for a spouse who leaves the workforce — even if it’s only temporary.

Spousal IRAs are not a special type of individual retirement account. They are standard IRAs used by someone who’s married. Both spouses can use either a traditional IRA or a Roth IRA.

If one spouse is working and the other spouse isn’t, the working spouse can contribute up to the maximum amount in his or her IRA. Then, the working spouse can contribute up to the maximum amount in the non-working spouse’s IRA.

Individual retirement accounts give you a tax break, either when you contribute or when you take money out after retirement.

You can open a spousal IRA through any bank, financial institution, mutual fund, life insurance company or stock broker that deals in IRAs. These can be in physical locations or online.

Once you set it up, you can choose assets in which you want to invest your contributions.

In 2024, the standard contribution limit for an individual retirement account was set at $7,000, but you can contribute an additional $1,000 if you are 50 or older. This limit applies to both traditional and Roth IRAs.

The total contributions to the working spouse’s IRA and the non-working spouse’s IRA cannot be more than the couple’s total taxable income reported in their tax return.

There are also rules on how you have to file your tax return and who owns the spousal IRA.

There are no income limits on how much a couple can contribute to traditional IRAs. But there are income limits the couple have to meet before setting up any Roth IRA.

The maximum amount you can contribute to a Roth IRA is determined by your income. The IRS uses a phase-out range based on your annual income and tax filing status. In 2024, it is $230,000 to $240,000.

If your income falls below the low number, you can make the contributions up to the full limit — $7,000 in 2024.

If your income falls within that range, your contribution limits are reduced. If your income exceeds the upper income threshold, you are not eligible to make any contributions to the IRA.