Individual retirement accounts(IRAs) are some of the best retirement plans anyone can open. You and your spouse can open different IRAs and make contributions based on your eligibility and the limits allowed by the IRS. If one spouse works but the other one doesn’t, the working spouse can open a spousal IRA and make contributions to the account on behalf of the other partner. For example, if you work and your wife is a stay-at-home mom, you can make contributions to a spousal IRA to help her save for retirement.
In this article, we will discuss how spousal IRAs work, how much you can contribute to a spousal IRA, and how to open a spousal IRA.
What is a spousal IRA?
A spousal IRA is similar to a regular IRA (Roth IRA or traditional IRA). The only difference is that a spousal IRA is designed specifically to help working individuals make contributions on behalf of their non-working spouses.
Before you can contribute to a spousal IRA, you must be married and file your taxes jointly. In addition, the spouse must be non-working (unemployed) or earning a small income.
How to open a spousal IRA
Before you can make contributions to a spousal IRA, you will need to open the account. Opening a spousal IRA is very easy and takes a few minutes. You can open an account with online investment companies or brokerage firms. You can also reach out to your local bank or credit union for spousal IRA requirements and specific steps needed to open an account.
Once you have decided on the institution to open a spousal IRA with, complete the application either online or in person. The application requires basic information about you and your spouse which includes your names, addresses, social security numbers, phone numbers, marriage status, email addresses, etc.
After opening a spousal IRA, you will need to link your bank to the account and start making contributions. Depending on your institution, it might take between 2 to 3 business days to verify your bank account.
Once you have contributed to your spousal IRA, you will need to start investing your funds. Most spousal IRAs come with a variety of investment options which include individual stocks, bonds, mutual funds, ETFs, etc.
Read more: Opening a spousal IRA in 9 simple steps
How much can you contribute to a spousal IRA?
The contribution limits to a spousal IRA are the same as regular IRAs. For 2024, the contribution limits to a spousal IRA are $7,000 or $8,000 if you are 50 or older. For 2023, the maximum contributions you can make to a spousal IRA is $6,500 or $7,500 if you are 50 or older.
Related: IRA contribution limits in 2024
Can you contribute to a spousal IRA?
You can contribute to a spousal IRA but your contributions cannot go over the acceptable contribution limits. If your spouse has little to no income, you can open an IRA on her/his behalf and make contributions. The IRS requires that you be married to your spouse and file a joint tax return.
In addition, your total contributions cannot go over the total limits allowed for both of your IRAs. In order words, the combined contribution limit cannot be more than double the contribution limits of $14,000 or $16,000 if both of you are 50 or older, for 2024.
For example, if you have a Roth IRA, you can contribute up to $7,000 to your IRA and another $7,000 to a spousal IRA.
Benefits of spousal IRA
The spousal IRA allows married couples to maximize their retirement savings with tax benefits. For example, if you open a traditional spousal IRA, your contributions to the account might be tax-deductible for the year you make contributions. Or if you have a Roth Roth spousal IRA, your spouse will enjoy tax-free distributions during retirement.
The spousal IRA also gives the non-working spouse access to a wide variety of investment choices, ranging from individual stocks, bonds, mutual funds, and exchange-traded funds(ETFs). These investments help your spouse diversify their portfolio and maximize their return on investments.
What is the best time to save for retirement?
The best time to save for retirement is now if you did not start yesterday. This is because retirement savings works better when you start early.
By saving early, you will have enough time to make manageable contributions and grow your account without hustle. On top of that, you will take advantage of compound interest which works well when the money is invested for a long time.
As soon as you get qualified for a 401(K) plan from your employer sign up and contribute at least to the employer matching percentage.
If your employer does not have a 401(K) plan, open an individual retirement account(IRA) and start saving. Every little bit helps and you will be surprised by how your account will grow over time.
Related: How much should you contribute to your 401(K) account
