In general, you can’t contribute to an individual retirement account (IRA) if you don’t earn an income in a particular year. The spousal IRA, however, is an exemption. If one spouse is working and the other has earned zero income, a spousal IRA allows a working spouse to contribute double the regular limitations to an IRA on behalf of their non-working spouse.
How Spousal IRAs Work
The IRS guidelines that allow a spouse who does not work or earn income to establish an individual retirement account are known as spousal IRAs. There isn’t a special type of IRA for spouses, the regulation permits non-working spouses to contribute to a traditional or Roth IRA if they file a joint tax return with their working spouse.
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Annual contribution limitations for spousal IRAs are the same as for other IRAs in 2021: $6,000 for individuals under 50 and $7,000 for those 50 and older. According to the spousal IRA rules, a couple with only one working spouse can contribute up to $12,000 per year, $13,000 if one spouse is 50 or older, and $14,000 if both spouses are 50 or older. Individuals are only allowed to contribute to their IRAs up to the yearly IRA contribution limit.
Example of Spousal IRA
Here’s an example of how spousal IRA restrictions function in real life. Taylor and Blake are both 40 years old, and before they married, they each opened and funded their individual Roth IRAs. Taylor now stays at home with the couple’s two small children, while Blake earns about $100,000 a year.
The pair plans to accumulate $12,000 in their IRAs for the tax year 2021 thanks to Blake’s generous earnings. They intend to contribute $6,000 each to their two Roth IRA accounts, evenly divided. Because of the spousal IRA limitations, Blake cannot contribute more than $6,000 to his own IRA. The remaining $6,000 must be deposited into Taylor’s account, which Taylor solely owns.
Spousal IRA Rules
There are several important rules to keep in mind regarding spousal IRAs:
Regardless of who funds the account, the account owner remains the same. When it comes to spousal IRAs, regardless of where the contributions come from, each spouse remains the designated account owner of their IRA. The spouse who owns the IRA has sole authority over asset allocation, beneficiaries, and withdrawals.
To be eligible, married couples must submit a joint tax return. Spousal IRA contributions are not available to couples who file their taxes separately.
For Roth IRA contribution restrictions, total marital income is taken into account. Maximum income requirements limit direct Roth IRA contributions; however, contributing to a spousal IRA raises the Roth IRA threshold for a couple. In 2021, a married couple with a combined modified adjusted gross income, MAGI, of up to $198,000 will be able to contribute the entire amount to each of their Roth IRAs. Couples with a MAGI of $198,000 to $208,000 can contribute to a Roth IRA partially.
Spousal IRA contributions have no age limit. You can contribute to your IRA regardless of your age as long as at least one member of the couple is employed.
Spousal IRA Tax Deductions
The tax deduction rules for a spousal IRA are the same as for a traditional IRA. Remember that Roth IRA contributions are not tax-deductible because they provide tax-free withdrawals in retirement.
The amount that can be deducted from taxes for married couples with only one income earner depends on whether the working spouse is protected by a workplace retirement plan. You can deduct the full amount of your IRA contributions from your taxes if that spouse is not covered by a job retirement plan.
If the spouse who’s earning an income has a workplace retirement plan, couples who earn up to $198,000 in 2021 can deduct the full amount, those who earn between $198,000 and $208,000 can deduct a portion, and those who earn more than $208,000 in 2021 cannot deduct their IRA contributions at all.
Note: If your income is too high for a Roth IRA and you are unable to deduct your traditional IRA contributions, consider a backdoor Roth IRA to help your retirement funds grow more tax-efficiently.
Opening a Spousal IRA
The process of establishing an IRA is straightforward. You can open an IRA or a Roth IRA for yourself or your spouse at almost any brokerage or robo-advisor. Stick with a broker or organization you can trust who has a strong track record.
You’ll need to enter basic personal information, including the account holder’s name, date of birth, and Social Security number. After you’ve set up the account, you’ll be able to begin funding the spousal IRA and laying the groundwork for your joint retirement.
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After entering the financial services industry in 1994, it was a desire to guide people towards their financial independence that drove Aaron to start Steele Capital Management in 2013. Armed with an extensive background in financial planning and commercial banking coupled with a sincere passion for helping people, Aaron has the expertise and affinity for serving the unique needs of those in transition. Clients benefit from his objective financial solutions and education aligned solely withhelping them pursue the most comfortable financial life possible.Born in Olympia, Washington, Aaron spent much of his childhood in Denver, Colorado. An area outside of Phoenix, Arizona, known as the East Valley, occupies a special place in Aaron’s heart. It is where he graduated from Arizona State University with a Bachelor of Science degree in Business Administration, started a family, and advanced his professional career.Having now returned to his hometown of Olympia, and with the days of coaching his sons football and baseball teams behind him, he now has time to pursue his civic passions. Aaron is proud to serve on the Board of Regents Leadership for Thurston County as the Secretary and Treasurer for the Morningside area. His past affiliations include the West Olympia Rotary and has served on various committees for organizations throughout his community.Aaron and his beautiful wife, Holly, a Registered Nurse, consider their greatest accomplishment having raised Thomas and Tate, their two intelligent and motivated sons. Their oldest son Tate is following in his father’s entrepreneurial footsteps and currently attends the Carson College of Business at Washington State University. Their beloved youngest son, Thomas, is a student at Olympia High School.Focused on helping veterans and their families navigate the maze of long-term care solutions, Aaron specializes in customized strategies to avoid the financial crisis that care related expenses can create. Experience has shown him that many seniors are not prepared for the economic transition that takes place as they reach an advanced age.With support from the American Academy of Benefit Planners – an organization with expertise and resources on the intricacies of government benefits – he helps clients close the gap between the cost of care and their income while protecting their assets from depletion.Aaron can help you and your family to create, preserve and protect your legacy.That’s making a difference.
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