In certain situations, a working spouse can contribute to an individual retirement account, or IRA, in the name of a spouse with little to no income. This is called a spousal IRA contribution.
But it’s actually a bit more complicated than that, and many people find that they’re ineligible for this strategy. So if you’ve considered making a spousal IRA contribution, read on first to find out if it would work for you:
Spousal IRA Contributions: The specifics
An IRA typically can only be contributed to by someone who is earning an income. The spousal IRA contribution option is an exception to this rule. It might apply for someone whose spouse stays home to watch the children, is out of work, or brings in a small income.
The spouse earning an income may want to continue to contribute to a separate IRA account for their spouse. That allows them to contribute up to double the IRA limit. For example, the contribution limits for 2021 and 2022 are $6,000 per individual, or $7,000 for people age 50 or older. With a spousal IRA, those limits become $12,000 for an individual, $13,000 if one spouse is 50 or older, or $14,000 if both spouses are 50 or older.
Eligibility can be tricky, so let’s take a closer look at who actually qualifies for spousal IRA contributions:
Who is eligible for spousal IRA contributions?
There are some rules that have to be followed for eligible spousal IRA contributions.
First, the account owner doesn’t change, regardless of who makes the contributions. Whoever’s name is on the account stays the same.
Second, couples must file taxes jointly to make spousal IRA contributions.
And last, joint income is a factor in eligibility if the higher-earning spouse has a work retirement plan. There are income limits on contributing to an IRA, and spousal contributions are no exception. The limit is different, however. For a spousal IRA, that threshold increases to $198,000.
If your 2021 modified adjusted gross income (MAGI) is between $198,000 and $208,000, you can still make partial contributions.
What else can you do?
If you don’t think a spousal IRA option is right for you, or you’re not eligible to make those contributions, there are some other options for spousal retirement savings.
Has your spouse’s work situation changed? Have they stopped earning an income, it’s important to revisit your retirement savings plans and make adjustments where you need to.
Factor in whether your spouse will only be out of work temporarily, or if they never plan to be in the workforce again. Your long-term income plan for your family will help determine how you save for retirement.
It could be as simple as increasing your own retirement savings. Or, you might need to open additional savings accounts to increase your retirement savings.
In some cases, you could potentially make a non-deductable IRA contribution.
Here is more information about managing finances when one spouse is out of the workforce, and figuring out what you’ll need for retirement.
About Your Richest Life
At Your Richest Life, Katie Brewer, CFP®, believes you too should have access to financial resources and fee-only financial planning. For more information on the services offered, contact Katie today.