Spousal IRA: Enhancing Retirement Savings for Non-Working Spouses

A Spousal IRA is a type of individual retirement account that allows a working spouse to contribute to an IRA on behalf of a non-working or lower-earning spouse. This strategy is designed to help couples maximize their retirement savings, even if one spouse has little or no taxable income. A Spousal IRA can be either a Traditional IRA or a Roth IRA, depending on the couple’s financial goals and tax situation.

Spousal IRAs are crucial for ensuring that both spouses can build retirement savings, regardless of whether both are earning an income. This is particularly beneficial for stay-at-home parents or spouses who are temporarily out of the workforce, allowing them to still benefit from tax-advantaged retirement savings.

• Contribution Limits: For 2023, the maximum contribution to a Spousal IRA is $6,500 per year or $7,500 if the spouse is aged 50 or older. This is the same limit as for regular IRAs.

• Eligibility: To contribute to a Spousal IRA, the working spouse must have sufficient earned income to cover both their own IRA contributions and the contributions to the Spousal IRA.

• Tax Treatment: Contributions to a Traditional Spousal IRA are tax-deductible, while Roth Spousal IRA contributions are made with after-tax dollars but offer tax-free withdrawals in retirement.

• Traditional Spousal IRA: Contributions are tax-deductible and the funds grow tax-deferred until they are withdrawn in retirement. Withdrawals are taxed as ordinary income.

• Roth Spousal IRA: Contributions are made with after-tax dollars and the funds grow tax-free. Withdrawals in retirement are also tax-free, provided certain conditions are met.

• Increased Awareness: Financial advisors are increasingly educating couples about the benefits of Spousal IRAs, especially in households with a single income earner, to help maximize retirement savings.

• Digital Platforms for IRA Management: Many financial institutions now offer online tools and platforms that make it easier to set up and manage Spousal IRAs, simplifying the process for both working and non-working spouses.

• Contribute Early and Often: Start contributing to the Spousal IRA as early as possible to take full advantage of the power of compound interest over time.

• Consider a Roth Spousal IRA: If the couple expects to be in a higher tax bracket during retirement, a Roth Spousal IRA may be more advantageous due to the tax-free withdrawals.

• Coordinate with Other Retirement Accounts: Couples should consider their overall retirement strategy and coordinate Spousal IRA contributions with other retirement accounts, such as 401(k)s or other IRAs, to maximize tax benefits and growth potential.

A Spousal IRA is an excellent way to ensure that both spouses have the opportunity to save for retirement, even if one spouse has little or no income. By taking advantage of the tax benefits and flexibility offered by Spousal IRAs, couples can enhance their retirement savings strategy and work towards a more secure financial future.