What is a Spousal IRA?

Shawn Plummer

CEO, The Annuity Expert

What is a Spousal IRA?

A Spousal IRA isn’t a distinct category of retirement accounts; it allows a working spouse to contribute to a non-working spouse’s traditional or Roth IRA. This strategy ensures that homemaking or other non-remunerated endeavors don’t create gaps in retirement savings.

Key Takeaways:

  • Spousal IRA allows working spouse to non-working spouse’s IRA
  • Spousal IRA can be used in either a Roth IRA or a traditional IRA
  • The couple must be legally married and file a joint tax return to open a Spousal IRA
  • Know your contribution limits, as they typically change annually

How to Open a Spousal IRA

Starting a Spousal IRA isn’t super complicated, but you need to be careful and pay attention to details:

  • Select a Custodian: Research financial institutions, focusing on factors like investment options, fees, and customer service. Ensure they offer Spousal IRA services.
  • Initiate the Process: Typically, you’ll start by opening a traditional or Roth IRA in the non-working spouse’s name. During this process, specify that funding will stem from spousal income.
  • Set the Course: Decide the investment strategies align with your retirement goals and risk tolerance. Diversification is key.
  • Regular Contributions: Systematic contributions fortify your financial bulwark. Ensure adherence to the annual contribution limits, which often change yearly and are contingent on various factors, including age.
Spousal Roth Ira

Spousal Roth IRA Vs. Traditional IRA

When opening a spousal IRA, it’s imperative to distinguish between its primary forms: Traditional and Roth. The crux of this decision revolves around tax implications.

  • Traditional Spousal IRA: Contributions potentially qualify for a tax deduction, with taxes deferred until funds are withdrawn in retirement. This route is often advantageous for those foreseeing a lower tax bracket in retirement.
  • Roth Spousal IRA: Contributions are post-tax, meaning no immediate tax benefit exists. However, this strategy culminates in tax-free withdrawals during retirement, proving beneficial for those anticipating a higher retirement income or preferring tax certainty.
Spousal Ira

Eligibility Requirements

The couple must be legally married and file a joint tax return to open a Spousal IRA. The working spouse must have earned income equal to or higher than the total IRA contributions to both accounts. The non-working spouse must be under 70 1/2 and have a valid Social Security or tax identification number.

FeatureTraditional Spousal IRARoth Spousal IRA
EligibilityMarried couples filing jointly, with at least one spouse earning income.Married couples filing jointly, with at least one spouse earning income. Income limits apply.
Tax Treatment of ContributionsContributions may be tax-deductible in the year they are made.Contributions are made with after-tax dollars; no tax deduction for contributions.
Contribution Limits (2024)$7,000 ($8,000 if age 50 or older, due to catch-up contributions).$7,000 ($8,000 if age 50 or older, due to catch-up contributions).
Income Limits for ContributionsNo income limits for contributions, but tax deductibility phases out if either spouse has a workplace retirement plan and they reach certain income thresholds.Eligibility to contribute phases out at higher income levels.
Tax on WithdrawalsWithdrawals in retirement are taxed as ordinary income.Qualified withdrawals are tax-free in retirement.
Required Minimum Distributions (RMDs)RMDs must begin at age 73.No RMDs during the original account holder’s lifetime.
Early Withdrawal PenaltiesWithdrawals before age 59½ may be subject to taxes and a 10% penalty, with certain exceptions.Withdrawals of earnings before age 59½ may be subject to taxes and a 10% penalty, unless an exception applies. Contributions can be withdrawn anytime without penalty.
Contribution Age LimitCannot contribute after age 73.No age limit for contributions, as long as the couple meets the income criteria.

Spousal IRA Rules and Contribution Limits

Understanding the contribution limits and rules is paramount in steering clear of penalties. For 2024, the contribution limit is $7,000 per spouse, with an additional catch-up contribution of $1,000 for those aged 50 or above. Notably, contributions to a Spousal IRA cannot exceed the couple’s joint taxable income.

Income limits also apply, particularly for Roth IRAs, where eligibility phases out at higher income brackets. For traditional IRAs, deduction limits may apply based on the couple’s income and whether they have access to a workplace retirement plan.

Spousal Ira Contribution Limits

Tax Implications and Withdrawal Strategies For Spousal IRAs

The tax journey differs for each IRA type. Traditional IRAs often grant tax deductions now, but withdrawals are taxed. Conversely, Roth IRAs demand tax on contributions, allowing for tax-free withdrawals, provided they’re qualified. Understanding these nuances aids in strategizing withdrawals and avoiding unexpected tax burdens.

Spouse Ira

Conclusion

A Spousal IRA is more than a retirement plan; it’s a testament to a partnership’s resilience, acknowledging mutual efforts in paving a secure financial future. By comprehending the mechanisms of Spousal IRAs, couples can ensure they’re harnessing every fiscal advantage. Though dotted with rules and limits, this journey leads to a destination where both partners can bask in the fruits of their collective labor, irrespective of individual income status. As you embark on this journey, remember that the path to financial security isn’t about the milestones but the shared steps.

Spousal Ira Income Limits

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Frequently Asked Questions

Can a non-working spouse open a separate IRA account?

Yes, a non-working spouse can open a separate IRA account, but the contribution limits will be lower. For 2024, the maximum contribution for a non-working spouse’s IRA is $7,000.

Can a working spouse contribute to their and their spouse’s IRA accounts?

A working spouse can contribute to their own and their spouse’s IRA accounts, but the total contribution cannot exceed the annual contribution limit.

Can a spousal IRA be rolled over into another retirement account?

Yes, a Spousal IRA can be rolled into another retirement account, such as a 401k or another IRA.

Can you withdraw your spousal IRA into an annuity?

Yes, you can withdraw your IRA into an annuity. A fixed annuity may be the right choice if you want a guaranteed income stream. A variable annuity may be a better fit. On the other hand, if you’re comfortable with market risk and want the potential for higher returns.

Shawn Plummer

CEO, The Annuity Expert

Shawn Plummer is a licensed financial professional, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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