March 30, 2022

2 Ways To Benefit From A Spousal IRA, #90

12 minutes

How do married people make retirement contributions for both spouses if only one is working? Whether you’re dragging your feet to file taxes for 2021 or planning ahead for 2022, this episode is for you! Learn how to keep your significant other’s retirement planning on track while getting them a tax deduction they would otherwise miss.

You will want to hear this episode if you are interested in...

Getting familiar with spousal IRA contributions [1:21]
Which type of spousal IRA contribution is right for you? [4:05]
Exploring spousal IRA income limitations [5:50]
Where do I set up a spousal IRA? [10:37]

The basics of spousal IRA contributions

As a married person, you likely want your spouse to be just as prepared for retirement as you are. After all, you’re in it together! But what happens if your spouse needs to take a year off from work to focus on themselves or take care of children? Do they have to put their retirement planning on hold as well? Absolutely not. Spousal IRA contributions allow a working spouse to contribute on behalf of a partner who isn’t working or didn’t have access to a company retirement plan.

Spousal IRAs are almost identical to normal IRAs and are fairly straightforward. If your spouse is under 50 years old you can contribute up to $6,000 to an IRA in their name. After 50, the IRS gives you a “catch-up bonus” of a thousand dollars bringing the maximum contribution amount to $7,000. The IRA contribution deadline is easy to remember because it’s Tax Day (April 15th) so there is still time to make a contribution for 2021. If you’ve already filed taxes for last year and would still like to make an IRA contribution, be aware that you need to amend your return to reflect that contribution.

Know your options and your limits

Similar to a regular IRA contribution, spousal IRA contributions have the option of going into either a traditional IRA or a Roth IRA. If you are looking to receive a deduction for your spousal IRA contribution then the traditional IRA is the way to go. The only downside is that all withdrawals on a traditional IRA will be taxed. With a Roth IRA, you lose the ability to deduct the contribution, but you pay taxes on the money upfront so all distributions are tax-free. Choosing which option is best for you really depends on your financial situation so pick the one that best suits your needs.

Another thing to consider is the spousal IRA income limitations. If your modified adjusted gross income (MAGI) is under $198,000 and the spouse you plan to contribute for didn’t have access to a company retirement plan during the year, you can make the full six or seven thousand dollar contribution. If your spouse had access to a company retirement plan for part of the year, they are subject to a different adjusted gross income limit. To learn more about these limits and other valuable information about spousal IRA contributions, listen to this episode!

Resources Mentioned