Most of us see IRAs as retirement plans for people with jobs. But what about parents who choose to stay at home with the kids? Just because a stay-at-home mom or dad does not produce an income doesn’t mean saving for retirement isn’t possible. Thanks to some generous federal guidelines, a stay-at-home parent can have her very own individual retirement account which are generally referred to by as a “Spousal IRA.”
So what exactly is a spousal IRA?
IRA is an acronym for Individual Retirement Account. This retirement account is a personal savings plan which allows an individual to save for the future and receive some tax breaks in the process. As far as the difference between a regular and a spousal IRA, there isn’t one at all. Spousal is just the term used to distinguish the stay-at-home mom’s retirement plan from that of her husband’s.
Where does the money come from to deposit into the IRA?
If stay-at-home parents had paying jobs, we’d would be permitted to put up to $5000 a year ($6000 if over 50) into an IRA. When we have no income for retirement savings, that’s where the spousal IRA goes into effect. A spousal IRA means that the working spouse is allowed to deposit up to $5000 into our personal account. This is in addition to the $5000 a year he may be putting into an IRA of his own.
In case you’ve been doing the math, the working spouse can deposit up to $10,000 a year ($12,000 if both are over 50) into the two accounts.
Do I qualify for a spousal Individual Retirement Account?
I happen to have a spousal IRA of my own so I know a bit of what’s involved. According my accountant, any stay-at-home parent is eligible to open up an IRA providing that the couple files their tax returns jointly. And like my husband who can start drawing account his plan at 59 1/2, I can do the same.
As far as paying into the IRA, I receive quarterly deposit slips and when there’s a bit of extra cash in the budget, send off the deposit slip with a check. Others may choose to pay into the accounts in one lump sum at tax time.
This is the simplified version of how at spousal IRA works though definitely not the complete story. For that, you’ll have to discuss it with your accountant who can explain how a opening up a spousal IRA can lower your tax liability while socking money away for retirement.
Smart Money” Spousal IRAs.
Bromoney.com Spousal IRA