Many stay at home parents accept the fact that they don’t have a retirement account, and they rely on their partner to provide for them both in retirement. However, this isn’t necessary. Not contributing to a retirement plan for both partners can be one of the biggest money mistakes couples make. If you are married, and you file taxes jointly, your working spouse can contribute to an IRA in your name. Because of the nature of this type of IRA, it is often referred to as a “spousal IRA.”
Contributing to a Spousal IRA
The point of the spousal IRA is to allow a stay at home partner the chance to save for retirement — in his or her own name. In reality, the spousal IRA is a “regular” IRA; the contributions to the account come from a spouse, though, rather than from the person who actually owns the IRA.
In order to make a spousal contribution to an IRA, the following conditions need to be met:
- You must be married filing jointly
- The IRA must be held in the name of the non-working spouse, and that money becomes his or hers (no joint IRAs)
- Contributing/working spouse must have earned income that exceeds the amount of contributions
- For a traditional IRA, the non-working spouse must be under 70 ½ in the year of the contribution (no age requirement for a Roth IRA)
Once you determine that the eligibility requirements are met for the spousal IRA, you can open a spousal IRA and begin contributing. This IRA has the same rules as any other IRA.
Follow the IRA Rules
For the most part, the rules for IRAs apply here: The $6,000 IRA contribution limit (but that’s for each account, so $12,000 total for your IRA and your spouse’s IRA), the catch-up contribution, the income limits for the Roth IRA, and the required minimum distributions that come with age for the traditional IRA.
It is worth noting that tax deductions for contributions to a spousal IRA are a little different. A working spouse that doesn’t participate in an employer-sponsored retirement plan can deduct the entire contribution amount made to a traditional spousal IRA. However, if the contributing/working spouse does have an employer-sponsored plan, the tax deduction isn’t the same.
You won’t be able to deduct the entire amount that you contribute to your spouse’s traditional IRA. (It’s a moot point with the Roth IRA, since Roth contributions aren’t tax-deductible anyway.) You can read more about Spousal IRAs in the IRS publication 590.
Opening a Spousal IRA
Opening a Spousal IRA is basically the same as opening any other IRA – you will need to have an IRA custodian such as a bank or investment account. Then you simply fill out some paperwork and make a contribution. Remember, the account is held in the name of the spouse (it’s not a joint IRA), so be sure to use the spouse’s name and Social Security Number. If you don’t already have an IRA, here are some good places to open one.
Give Your Spouse a Good Head Start
There are many women who stay at home, and an increasing number of men that stay at home, while their spouses work. Being a stay at home spouse can lead to financial setbacks and the sacrifice of earning power. On top of that, there is no monetary compensation for the hard work a stay at home spouse often puts in. It seems only natural that such sacrifice is recognized with a shot at a more stable financial future. On top of that, you can double your IRA contributions as a household with the help of a spousal IRA.
A spousal IRA can be a great tool that helps stay at home spouses save for retirement, while at the same time increasing the tax-advantaged savings potential of the entire household.