Keep Retirement Saving on Track With Spousal IRA

A spousal IRA — funded for a spouse who earns little or no income — offers an opportunity to help keep the retirement savings of both spouses on track. It also offers a larger potential tax deduction for a married couple.

Being a stay-at-home mom or dad, or working part-time to help take care of the children, can make a big contribution to the balance and well-being of a family. Unfortunately, time out of the workforce could put the caregiving spouse at a disadvantage when it comes to retirement savings.

Making Contributions to Spousal IRA

For 2018 tax years, an individual with earned income can contribute up to $5,500 to his or her own IRA. Also, you can contribute up to $5,500 more to a spouse’s IRA — regardless of whether the spouse works or not. There are a few rules. The couple’s combined earned income must exceed both contributions and the couple must file a joint tax return. You can make an additional $1,000 catch-up contribution a spouse who is age 50 or older.
If neither spouse actively participates in an employer-sponsored retirement plan, contributions to a traditional IRA are fully tax deductible. However, if one or both are active participants, tax deductibility for joint filers phases out at a modified adjusted gross income (MAGI) of $101,000 to $121,000 for a participating spouse and $189,000 to $199,000 for a nonparticipating spouse. Thus, some participants in workplace plans who earn too much to deduct an IRA contribution for themselves may still be able to deduct an IRA contribution for a nonparticipating spouse.

Contributions to a Roth IRA are not tax deductible regardless of participation in a workplace plan. However, eligibility to contribute to a Roth IRA phases out for joint filers with a MAGI of $189,000 to $199,000 in 2018.

Distributions from traditional IRAs are taxed as ordinary income. They may be subject to a 10% federal income tax penalty if withdrawn prior to age 59½. Roth IRA contributions can be withdrawn penalty-free and tax-free at any time. However, a Roth IRA distribution must meet the five-year holding requirement and take place after age 59½.

Since 1979, I have been helping those individuals preparing for retirement who are concerned about outliving their resources.

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