All You Need to Know About Spousal IRAs

A spousal IRA is a unique Individual Retirement Account that allows an unemployed or low-earning individual, who has a wage earning partner, to contribute to their retirement savings. 

Here’s what you need to know about spousal IRAs.

What is a spousal IRA?

A spousal IRA is designed for unemployed or underemployed partners of working individuals. These retirement accounts allow the non-working or low-working spouse to contribute to an IRA based on the income of their working partner. The maximum contribution limit for a spousal IRA will be the same as for a regular IRA, subject to annual IRS guidelines.

A couple that’s eligible for a spousal IRA can open a traditional spousal IRA or a Roth spousal IRA.

Is every couple eligible for a spousal IRA?

To qualify for a spousal IRA, couples must file joint tax returns. Additionally, the working spouse must have enough earned income to cover both their IRA contributions and those of their lesser-working spouse. The lesser-working spouse must also meet the same eligibility requirements as any other IRA contributor.

What are the contribution limits for spousal IRAs?

As of 2024, the contribution limit for traditional and Roth IRAs is $7,000 per year, with a catch-up contribution of $1,000 for a maximum of $8,000 for individuals aged 50 and older. This limit applies to both traditional and Roth IRAs. For spousal IRAs, the maximum contribution is determined by the earned income of the working spouse and is subject to the overall IRA contribution limit.

For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range for IRAs is $123,000 to $143,000 in 2024.

For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the phase-out range increases to $230,000 to $240,000 in 2024. 

What are the advantages of a spousal IRA?

A spousal IRA provides a way for an unemployed or underemployed individual to build their retirement savings. In addition, both spouses will have access to a wide variety of investment options.

Are contributions to a spousal IRA tax-deductible?

Contributions to a traditional spousal IRA may be tax-deductible, depending on the couple’s income level and whether the working spouse is covered by a retirement plan at work.

When withdrawals are made from the spousal IRA during retirement, they will be taxed as ordinary income. 

On the other hand, contributions to a Roth spousal IRA are made with after-tax dollars, which means they are not tax-deductible. However, qualified withdrawals from Roth IRAs, including contributions and earnings, are tax-free in retirement.

Managing a spousal IRA effectively

Here’s how to manage a spousal IRA effectively: 

• Maximize contributions. Take full advantage of the contribution limits for both spouses. 

• Diversify investments. Choose a diversified portfolio of investments based on your risk tolerance, time horizon and retirement goals.

• Regularly review and rebalance. Periodically review your spousal IRA portfolio to ensure it remains aligned with your long-term objectives. 

• Consider a Roth conversion. Evaluate the benefits of converting traditional IRA assets to a Roth IRA. 

• Stay informed. Keep up with annual changes in tax laws and retirement guidelines that may impact your spousal IRA. 

• Plan for withdrawals. Develop a withdrawal strategy for your spousal IRA to minimize taxes and maximize income in retirement. 

Use this guide for all you need to know about spousal IRAs.