What Is A Spousal IRA?

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These IRAs are regular traditional or Roth IRAs that married couples use to invest, keeping a long-term horizon in mind. Each spouse gets allotted an individual IRA account where they can each contribute $6,000 towards the investment annually or $7,000 each if they are above 50 years of age. However, the working spouse’s income must equal or more than the income contributed in both accounts.

Key Takeaways

  • Spousal IRA is an investment strategy where the earning spouse can contribute to their partner’s Individual Retirement Account (IRS).To be eligible to contribute to their spouses’ retirement investment, married couples must file their yearly tax returns jointly.Irrespective of the funding party, the account is considered an individual account. The contribution ceiling is $6,000 per individual below 50 years of age and $7,000 for those above it.The non-working spouse holds absolute ownership and can choose beneficiaries without the consent of their contributing partner.

Spousal IRA Explained

A spousal IRA is an investment strategy that allows a working spouse to contribute on behalf of the spouse that earns little to no income. One must note that both spouses’ contributions are not held in a joint account. Instead, two separate accounts are allotted for both parties.

These are typical IRA accounts allotted to individuals. There is no “spousal” or joint account for IRA. A spousal IRA is essentially a spouse contributing to their partner’s account instead of them doing it on their own.

To qualify under the spousal IRA rules, the couple must file joint returns during their yearly filing of tax returns. The investment in a spousal IRA grows at 6% annually and is a viable source of risk-free investment for a couple to prepare for retirement. In addition, banks, credit unions, brokerage companies, and savings and loan associations insured by the feds offer IRAs upon sorting approval from the Internal Revenue Service (IRS).

Rules

While applying or contributing to an IRA, it is helpful to be aware of the rules mentioned below:

#1 – No Age Limits

There are no restrictions in terms of spousal IRA age limits. Irrespective of age, the working spouse can continue contributing to their partner’s accounts as long as one of the two is working.

#2 – Filing Joint Returns

To qualify under the spousal IRA rules, the couple must file their yearly tax returns jointly.

#3 – Beneficiary

Regardless of who contributes to the IRA, the individual will decide who will receive the amount in the account holder’s death situation. The non-working spouse doesn’t need to name their partner as their spousal IRA beneficiary. They can name someone else as the beneficiary without their partner’s consent.

#4 – Ownership

The account holder holds absolute decision-making authority irrespective of who contributes funds towards retirement planning.

Contribution limits

Spousal IRA limits are the same in terms of contribution as any other IRA. $6,000 for each individual can be the maximum contribution. However, if the individual is above 50 years of age or more, they can contribute $7,000 annually. The IRS allows each spouse to contribute the maximum limit amount annually. Therefore, the working spouse can contribute a maximum of $12,000 towards the IRA to individual accounts and a maximum of $14,000 if aged 50 years or above.

Tax Deduction

The tax deduction rules for a spousal IRA are identical to that of a traditional IRA. However, for a couple filing their tax returns, where only one is working, the deductions rely on whether their company covers their retirement plan.

For an individual whose retirement plan is covered by their workplace, the phase-out ranges between $116,000-$136,000. On the flip side, if the working spouse’s company does not cover the retirement plan, the phase-out range is from $218,000-$228,000.

The phase-out range is the taxpayer’s eligibility for tax credits gradually reduced when they approach the upper limits of income to qualify for such credit.

Rollover

In a circumstance where the deceased spouse’s IRA contributions are passed on to the surviving spouse as a beneficiary, it is called a rollover.

However, they cannot treat the contributions inherited from their spouse as their own, especially if the surviving spouse of not above the age of 72. According to the IRS’s RBD or Required Beginning Date, an individual has to attain the age of 72 to be able to start their gradual withdrawal from their IRA accounts.

Therefore, a general practice among surviving spouses is to claim ownership of the spouse’s IRA. In that case, the deceased spouse’s account is added to the assets of the surviving partner.

Spousal IRA vs Inherited IRA

Spousal IRA and Inherited IRA are subsets of the Individual Retirement Account. However, there are differences in contributions, ownership, and other factors. Let us understand the differences through the table below:

This article has been a guide to what is Spousal IRA. Here, we explain its rules, limits, and tax deductions and compare it with the inherited IRA. You can learn more about it from the following articles –

Anyone who wants to open a spousal IRA account can do so from an IRA broker or an automated financial advisor (often referred to as Robo-advisor). Applicants must submit basic information such as date of birth and social security number. The amount deposited in this account provides a return of 6%.

The income of the earning and contributing spouse has to exceed the amount contributed. The spousal IRA limits allow a maximum contribution of $6,000 annually for each account. However, if the individual is above 50, a maximum contribution of $7,000 is allowed.

A married couple has to file their yearly tax returns jointly, irrespective of who makes the contributions to the account, to be eligible to contribute to a spousal IRA. There are no age restrictions to make contributions. However, the contributions cannot be more than the income disclosed in the joint returns.

Yes. Regardless of who contributes to the IRA, the account is treated as an individual account. However, to be able to contribute for a non-earning spouse, the married couple must file their joint tax returns to be eligible.

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