This article was updated on May 31, 2016.

If you want contribute money to an IRA for your retirement, the IRS rules are (uncharacteristically) straightforward: You must be under the age of 70-1/2 (for a traditional IRA; the Roth has no age restrictions), and you must have earned taxable income.

But unless gratitude, hugs, and works of art created with finger paints and crayons qualify as "earned income," a nonworking spouse would look at that paycheck requirement and assume that opening their own IRA was a no-go.

Wrong-o, stay-at-home spouse! While your kids, the dog, and your partner might not formally acknowledge the six-figure paycheck worth of work you do, the IRS recognizes that you are indeed working while you're "not working" and that you should have the same incentives as 9-to-5 desk jockeys to set aside savings for your retirement.

A smiling man and woman.

Image source: Getty Images.

The spousal IRA income requirement loophole

Uncle Sam wants everyone to save for the future, so much so that he's sweetened the pot with some tax breaks to get us to squirrel away as much money as we can: up-front tax deductions for traditional IRAs and tax-free benefits in retirement if you choose to go the Roth IRA route.

For stay-at-home spouses who might not make enough (if any) money of their own to qualify for IRA contributions, the IRS has come up with an alternative: the spousal IRA.

As long as the family earned income is high enough -- that is, the total earned income from both spouses -- any earned income that isn't used to fund the working spouse's IRA can be used for the nonworking partner's contribution to a spousal IRA.

Beyond that, there are some other rules that couples need to heed regarding spousal IRAs. I mean, we're talking about tax law here, so of course there are.

The rules/requirements of spousal IRAs

When you two kids walked down the aisle (or sealed the deal Vegas-style through a drive-thru), you may have vowed to act as one in all matters related to marriage and money. However, in all things related to tax-advantaged savings accounts, the IRS does not treat retirement savings as a family matter.

The "I" in IRA stands for "individual," and that's exactly what the account is. Even if the spousal IRA is funded by the working spouse's income, the account belongs to the nonworking spouse and is theirs and theirs alone until death or divorce do you part.

Therefore, one important rule of spousal IRAs is that the account must be held in the nonworking spouse's name and Social Security or tax identification number. If the nonworking spouse already has an IRA they opened during their formal working days, then they can use that account for spousal IRA contributions. And if they later start working again and contributing their own income to an IRA, the same goes: They can simply add that money to the same account.

Beyond those rules, there are a few requirements to be eligible to contribute to a spousal IRA:

  • You must be married
  • You must file a joint income tax return (as opposed to being married and filing separately)
  • Your household must have earned income of at least the total amount contributed to all IRAs (meaning both spouses' IRAs)

Types of spousal IRAs

Just like regular IRAs, spousal IRAs come in two flavors: traditional and Roth. (Visit our IRA center to learn more about IRAs.) 

In a much-appreciated show of consideration to taxpayers and financial writers, the IRS rules for spousal IRAs are not written in Sanskrit: The same IRA-related rules for the working member of the household apply to the nonworking spouse.

Things like age (yours, not your spouse's), income (for the total household), and whether your spouse contributed to an employer-sponsored retirement plan (e.g., 401(k)) will determine which type of IRA you can contribute to (Roth vs. traditional), how much money you can sock away, and whether your contributions will be tax deductible in the year that you make them.

Here's the information in handy table form to help nonworking spouses pick the best flavor of IRA for their retirement stash:

2016 Spousal IRA Cheat Sheet

 

Spousal Traditional IRA

Spousal Roth IRA

Maximum Allowable Contribution

$5,500 ($6,500 if the nonworking spouse is age 50 and over)

$5,500 ($6,500 if the nonworking spouse is age 50 and over)

Age Limitations on Contributions

No contributions allowed after age 70-1/2.

None

Annual Earned Income Requirements

Total traditional IRA contribution amount for both spouses cannot exceed total amount of your joint taxable income, or double the annual IRA limit, whichever is less.

Total Roth IRA contribution amount for both spouses cannot exceed total amount of your joint taxable income, or double the annual IRA limit, whichever is less.

Covered by a Retirement Plan at Work?

Ability to deduct contributions to a traditional IRA may be limited or entirely eliminated if the working spouse contributes to an employer-sponsored plan.

No effect on eligibility for spousal Roth IRA.

Income Limits on Contributions

None, though deductibility of contributions may be limited (or entirely eliminated) based on the married filing jointly modified adjusted gross income limits.

The amount that can be contributed gradually declines to zero based on the household's modified adjusted gross income (MAGI). For married couples filing jointly, the limits start at $184,000-$194,000.

Deductibility of Contributions

Fully deductible if the working spouse is not covered by a retirement plan at work. Otherwise, deductibility is phased out for married couples with a MAGI between $98,000-$118,000. (See traditional IRA deduction limits for specific phase-out deductibility rules.)

Non-deductible

Beyond the basics of contributions and deductibility issues, there are other account features that may sway you one way or the other in terms of choosing a traditional IRA or a Roth IRA. Cheat off our Roth IRA vs. Traditional IRA homework and get guidance on how to choose the best IRA for you and your significant other:

Don't fall behind when you're not working

Your retirement savings (and any tax savings options you had when you were bringing home the bacon) needn't go dormant during periods when you're not working. If you are half of a one-earner couple, a spousal IRA can offer a boost to your family's future way of life and ensure that while one spouse isn't working that they don't miss out on years of their investments compounding over time.

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