When planning for the future, knowing what retirement accounts are available can be challenging. Having a spousal IRA isn’t for everyone, but this particular investment vehicle can be helpful for some. Here’s a closer look at what a spousal IRA is and why you might be interested in obtaining one.
What is a Spousal IRA?
Investopedia defines a Spousal IRA as “A Traditional or Roth IRA established and funded by an individual for his or her spouse.” Farimark clarifies that the contribution itself need not actually be provided by a spouse; what the special account really means is that “you relied on your spouse’s qualifying income to make a contribution that would not have been possible based on your own income.”
“Qualifying income” is a buzzword when it comes to IRA contributions. In general, you cannot contribute to an IRA fund unless you have qualifying income which includes “amounts earned as an employee, self-employment income, and alimony income” Hence, an average stay-at-home mom with no paycheck does not have qualifying income in the strict sense of the term and would be unable to set up a regular IRA of her own. The “spousal” distinction on this type of IRA makes saving for retirement feasible, using your husband’s qualifying income to get your name on an account.
When Could Getting a Spousal IRA Make Financial Sense?
1. You have a spouse. In order to set up a spousal IRA, you must be legally married by the end of the tax year.
2. Your husband has qualifying income, and it exceeds his regular contributions to his own IRA. The IRS government site explains that a person’s “total contribution to both your IRA and the spousal IRA for this year is limited by certain factors such as your taxable compensation, contributions to a traditional or Roth IRA and your age.” Although the specifics of those certain factors will dictate the specifics of your eligibility, provided that your husband’s qualifying income exceeds what he contributes to his own IRA, you can be legally eligible to contribute to a spousal IRA.
3. You and your husband file a joint tax return. You must file a joint federal income tax return in order to qualify for spousal IRA eligibility.
4. You are younger than 70.5. Boston’s “Managing Your Money” advice center reminds savers that, as is the case with traditional IRAs as well, contributions to a spousal IRA “are not allowed after the account owner reaches age 70.5.”
5. You want to start saving for retirement. If your current qualifying income status is what makes you unable to save for retirement like you would want to, setting up a spousal IRA vehicle can make a great deal of financial sense. If you are not eligible for a traditional or Roth IRA, but do have nest-egg money to set aside–and you meet the above requirements for eligibility–you may be interested in having your very own spousal IRA.
“Managing Your Money: Spousal IRA Contributions.” Boston.
“Qualifying Income for IRA Contributions.” Fairmark.
“Spousal IRA Definition.” Investopedia.
“Spousal IRA Limit.” IRS.gov.
“Spousal Roth IRA.” Fairmark.
“Traditional IRA.” IRS.gov.