Plans for Individuals

What Is a Spousal IRA and How Does it Work?

A spousal IRA is a common term for a strategy that allows one spouse to contribute to their spouse’s retirement plan. This transaction is available to married couples in situations when one spouse either does not work or earns little annual income. The spouse who earns the primary income makes contributions to an IRA established in the other spouse’s name.

This strategy provides the opportunity for both members of a married couple to maximize and enhance retirement planning. The couple enjoys a potential tax break in the years spousal contributions are made to a traditional IRA or they reap the benefits of tax-free distributions in retirement from a Roth IRA.

Spousal IRAs are a great benefit for married couples in circumstances where one does not work (or works part time) but the other does. For this article, we’ll use the example of a stay-at-home parent (who also work part time). If your spouse is the primary breadwinner, a spousal IRA provides you the benefit and security of building a retirement nest egg in your own name.

Read on to learn the rules and to discover how a spousal IRA works for you.

Rules for a Spousal IRA

Often people assume a spousal IRA is a joint account, which is not the case. There is no such thing as a joint retirement plan. A spousal IRA is opened by the non-working spouse and is owned by that spouse—even though the working spouse makes all (or the bulk of) the contributions. Additionally, the working spouse is not required to be the beneficiary of the spousal account. The account owner designates a beneficiary of their choice.

    • To qualify for spousal contributions, you must be married and file a joint tax return.
    • Spousal IRAs must be traditional IRAs or Roth IRAs established in An African American couple hugging and smiling at the camera because they learned about a spousal IRA.your name.
    • The working spouse can have a workplace 401(k) and/or their own IRA and make contributions to your IRA.
    • Working spouses with their own retirement plan can make contributions to their own retirement plan and to your IRA—up to the full annual contribution limit for each account.
    • Roth IRA income limits apply to spousal Roth accounts; make sure the working spouse’s income (or your combined income) falls within the limits that allow contributions to a Roth IRA.
    • The primary working spouse must earn enough income to cover the spousal contribution into your account and any contributions to his or her own retirement account.
    • Combined contributions to the working spouse’s plan and your IRA cannot exceed the taxable income you claim on your joint return.
    • Contributions to the spousal IRA cannot exceed annual contribution limits for that plan.

Contribution Limits

Since spousal IRAs are either traditional or Roth IRAs, you follow the contribution limits for those accounts.

    • In 2023, the contribution limit for both traditional and Roth plans is $6,500. An additional $1,000 catch-up contribution is allowed if you’re age 50 and over.
    • In 2024, the limit is raised to $7,000 a year or $8,000 for those age 50 and over who take advantage of the $1,000 catch-up contribution.

Remember, the working spouse can have their own retirement plan and make contributions into both accounts. The working spouse makes contributions within allowable annual limits to each account.

So, if your spouse has an employer-sponsored 401(k), they can contribute the maximum allowed each year to that account and also contribute the maximum allowed into your IRA. If you both have traditional or Roth IRAs, the maximum annual contribution allowance listed below can be deposited into each one of your IRAs.

Requirements for Roth IRA Contribution Eligibility

Roth IRA income rules apply to spousal IRAs. This means, your modified adjusted gross income (MAGI) on your joint tax return cannot be more than $240,000 in 2024. Otherwise, you cannot make contributions to a Roth account.

There are no income rules for contribution to traditional IRAs.

Summary of the Benefits of Spousal IRA Contributions

Spousal IRA contributions are a great benefit the IRS allows to help couples to sock away savings for retirement. The working spouse can contribute the maximum amount allowed into each spouse’s retirement plan, including catch-up contributions. As a non-working/low-earning spouse, you reap the benefit of building retirement funds in your own account. Additionally, you continue to own that IRA in the event of a separation or divorce. Spousal IRAs must be either a traditional or Roth IRA. Remember, Roth income limits apply for contributions to those post-tax accounts.

Additionally, you can self-direct a spousal IRA. Self-directed IRAs allow you to use alternative investments to build wealth for retirement. This means you can invest in things like real estate, private equity, gold, private mortgages, and other assets not available on the stock market. This ability can significantly broaden the earning potential of your IRA.

If you’d like to learn more, contact Advanta IRA today.

About Scott Maurer

Scott Maurer, Vice President of Sales for Advanta IRA, is a recognized expert in the field of self-directed IRAs. With a law degree from the University of Florida and as a designated Certified IRA Services Professional (CISP), Scott’s keen understanding of rules and regulations fuels his passion to educate others on the power of investing in alternative assets using self-directed IRAs. Scott is a frequent guest on retirement and investing webinars and podcasts, and he has shown thousands of individuals how to achieve financial freedom by teaching them how to use their retirement funds to invest in private placements, real estate, private lending, and more. Throughout his two decades in the industry, he has watched numerous unique investments unfold, giving him great perspective of what is possible when people take control of their retirement funds and investing decisions.