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Spousal IRA Rules for Couples in 2016

By Dan Caplinger – Mar 29, 2016 at 8:19AM

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Single-earner families can still double up for retirement savings.

Image: Flickr user Jenifer Correa.

Tax-favored retirement accounts like IRAs are a great way to save for your golden years. You typically need to have earned income to contribute to an IRA, however, and that can pose problems for some savers. To avoid those problems, married couples can take advantage of the spousal IRA rules to make IRA contributions on behalf of a non-working spouse and benefit from the same tax savings that those who make ordinary IRA contributions enjoy.

Having enough income
One of the key elements of the spousal IRA is that the married couple has to have enough earned income to cover both the working spouse's own IRA contribution and the spousal IRA contribution on behalf of the non-working spouse. For 2015 and 2016, that requires $5,500 of earned income for each spouse, plus an additional $1,000 for each spouse who is 50 or older as of the end of the tax year.

If limited income is an issue, the couple can choose which spouse gets to make IRA contributions. There's no requirement that the working spouse fully fund an IRA before the non-working spouse puts money in a spousal IRA.

Understanding how spousal IRAs work
Eligibility for a spousal IRA depends on the status of both spouses. But once the spousal IRA is set up, it belongs to the spouse exclusively. The spouse's Social Security or tax identification number is the one associated with the account, and the spouse has sole authority over investing and withdrawal decisions.

In the past, spousal IRAs had to be held separately from other types of accounts. Therefore, for a spouse who had worked in the past but chose not to work for a time, multiple IRAs would be necessary to reflect the changes in working status over time. Fortunately, those rules have changed. Now, spouses can contribute to the same IRA regardless of whether the contributions qualify under the spousal IRA rules or under the regular earned income rules.

Once money is in the spousal IRA, the same rules governing all IRAs apply to it. Withdrawals made before age 59 1/2 are subject to a 10% early withdrawal penalty in most circumstances, and they are includible in taxable income for a traditional IRA. Once you turn 70 1/2, you can no longer make contributions to a spousal IRA that's structured as a traditional IRA. Spousal Roth IRAs aren't subject to the 70 1/2 age restriction.

A spousal IRA can be either a traditional or a Roth IRA, with the differences in tax treatment applying in the same manner that they would for someone who had earned income. The same income limits on deductibility of traditional IRA contributions apply, and the same income-based restrictions on making Roth IRA contributions at all affect spousal IRAs the same way they do other IRAs.

There is one key requirement for doing a spousal IRA: the married spouses must file a joint tax return. If you are married and file separately, then you won't be eligible to contribute to a spousal IRA.

If you're married and choose to have one spouse stay at home without earning income, then a spousal IRA can be exactly what you need to make sure that both spouses will have the financial resources they need after they choose to retire. By being aware of the rules that govern spousal IRAs and understanding the flexibility that they offer to married couples in figuring out how to allocate financial resources toward long-term goals, you can make sure that your entire family gets the security they need to support themselves in retirement.

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