What Is a Spousal IRA?
What makes a spousal IRA unique? Or is it no different from a traditional individual retirement account? In fact, it’s the one exception to the provision that states an individual must have earned income to contribute to an IRA. Let’s dig a little deeper below.
How a Spousal IRA Works
Preparing for retirement is an essential and continual process during your career. Therefore, it’s important to research each and every savings opportunity available to you. And many married couples aren’t taking advantage of this unique retirement account.
So what is a spousal IRA? It’s an individual retirement account that allows a working spouse to contribute on behalf of a spouse who earns little to no money.
It also means that a spouse who doesn’t work can contribute to a spousal IRA if the married couple files taxes jointly. The maximum annual contribution limit is up to $6,000 in 2020 and 2021 if each spouse has an IRA. This number rises to $7,000 for those 50 or older.
And you may qualify for a tax break depending on the type of IRA you setup, whether it be traditional or a Roth IRA. There’s also a saver’s credit of up to $2,000 for married couples with an adjusted gross income of less than $65,000 in 2020 and $66,000 in 2021 during tax season.
Spousal IRA Rules and Requirements
As with any retirement account, there are certain requirements you must meet to start your own spousal IRA. For example, these rules include…
- One spouse must have enough earned income to cover contributions.
- The couple must file taxes as “married filed jointly.”
- The spousal IRA must be in the name of, and owned by, the nonworking spouse (no co-ownership).
- The couple must stay within strict income limits.
In general, a spousal IRA is no different from your regular IRA. The key difference is that ownership of the account must be in the name of the nonworking spouse. Income limits and other basic requirements still apply.
How to Open an Account
Opening an account is simple. And most of America’s leading retirement brokers or robo-advisors offer a spousal IRA. This includes household names such as Fidelity, TD Ameritrade, Merrill Edge and more.
To open the account, you will need to provide personal information, such as your name, address, birthdate and Social Security number. But that’s about all it takes. The process is simple, and your preferred broker will reach out to you for any additional information they require.
Saving for Retirement
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Preparing for retirement takes time and a dedication to saving money. And the more you know, the better you will do. Learn everything you can about 401(k) plans, 403(b) plans and everything in between. A spousal IRA is a great way to protect your nonworking spouse once your working days are over.