3 Reasons You Need a Spousal IRA

Don't neglect your retirement plan just because you have little or no earned income this year. You may be able to contribute based on your spouse's earned income.

Apr 6, 2014 at 12:00PM

You need your own retirement plan. This is true regardless of whether your spouse is covered at work or how much money, if any, you earn. Fortunately, even if you have little or no income of your own, you might still be able to open a spousal individual retirement arrangement, or spousal IRA, based on yours and your spouse's total earned income.

How spousal IRAs work
A common misperception about spousal IRAs is that they are somehow connected to your spouse. Other than the fact that your allowable contribution is based on yours and your spouse's total earned income, a spousal IRA is just like any other IRA: It's yours. It's in your name and your name alone. There is no such thing as an IRA owned by two people.

If you already own an IRA account at a brokerage or other financial institution, you can use it as your spousal IRA. You don't need to open a special "spousal" IRA, and you certainly don't need your spouse to open the account for you. If you earn income in future years, you can continue to contribute to the same account.

Your contributions to a traditional or Roth IRA are limited to the lesser of:

  • $5,500, or $6,500 if you are age 50 or older at the end of the tax year.
  • Yours and your spouse's total compensation that is included in gross income, less your spouse's deductible and nondeductible IRA contributions and Roth IRA contributions.

To qualify for a spousal IRA, you must be married to your husband or wife at the end of the tax year, and you must file a joint return. Your contributions to traditional and Roth IRAs are also subject to the same rules as non-spousal IRAs. Your contributions may be limited if you are a high-income taxpayer. If you use tax software, the program should calculate your maximum spousal IRA contribution.

You have until the original filing deadline, before any extensions, to open an IRA and make a contribution for the prior tax year.

Here are three great reasons why you might want to consider a spousal IRA.

1. Max out those contribution limits
One reason to have your own account and not rely solely on your spouse's plan is that the contribution limits for IRAs, and many other plans, are not terribly high. Consistency is the first key to retirement planning success. To make real progress on retirement savings, try to make the maximum contributions to both your accounts, and make them every year.

2. You can take advantage of your biggest asset: time
The second key to successful retirement planning is timing. It's the miracle of compounded earnings. Having your own IRA helps start your saving for retirement as soon as possible -- and getting started can be the hardest part. If you wait until you go back to work to start your account -- say, when the kids are older -- you'll miss out on prime saving years. It's a lot harder to create a fund that will sustain you in your retirement years if you wait too long to get started.

3. Take ownership in your retirement
The third reason you should have an account in your name is that it gives you a feeling of ownership and involvement. Most marriages have one partner more interested in money management and investing than the other. That's fine. However, you should both know what's going on and where your money is invested. Bonus: You're more likely to agree on financial goals and understand how you're working together toward them when both spouses feel like active partners.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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