In order to make Roth IRA contributions, you typically have to have earned income. Unfortunately, this can pose a problem for adults who – for one reason or another – make no income or minimal income. A number of families choose to have one parent stay home due to the cost of childcare, personal decisions, or for other reasons. Does this mean that the non-working spouse can’t save for retirement? Not at all. And a spousal Roth IRA is an excellent place to start.
What is a spousal IRA?
A spousal IRA (either Traditional or Roth) allows a non-working spouse to hold an IRA that’s contributed to by the working spouse. In this way, the non-working spouse can still save for retirement.
To be eligible to contribute to a spousal IRA, married couples must file taxes jointly. They also must have combined earnings that meet or exceed their IRA contributions.
In other words, a spousal IRA is really just a regular IRA account that a spouse can contribute to. Each spouse has their own individual retirement account. A spousal IRA is not a joint account.
Can a non-working spouse contribute to a Roth IRA?
Since having a Roth IRA typically requires earned income, a spousal IRA is a perfect solution for allowing a non-working or low-earning spouse to build up a retirement account. As long as the combined income between the married couple is at least as much as the IRA contributions of both, contributing to a spousal IRA is just like making a regular contribution. There’s no special code or procedure to do so.
In regards to contribution limits, spousal IRAs work just like regular IRAs. During the 2023 tax year, the maximum contribution limit is $6,500. For ages 50 and older, it’s $7,500.
For many spousal IRAs, the working spouse’s contribution is the main or sole amount going into the account. However, if the non-working spouse does make a small amount of income (whether through a part-time job, side gig, other various sources, etc.) this amount can be contributed as well. The working spouse can then add funds in order to meet the maximum amount of total contributions.
For example, Greg makes $90,000 per year, while Laura stays home to care for their children. Through Greg contributes to the majority of the household income, Laura watches a couple of other children in the family’s home once a week and makes $4,000 per year. Laura’s pay is less than the annual contribution amount, but she can still contribute up to $6,500 during the year based on the couple’s combined income.
How to best use a spousal IRA to boost your family’s retirement savings
As a nonworking spouse, it doesn’t have to be complicated to save for retirement, and having your own IRA is a valuable tool for doing so. In fact, it’s one is one of the best and easiest ways to invest for retirement.
Besides simply making spousal IRA contributions, you’ll also want to…
- Start saving using your retirement accounts as early as possible.
- Stay up-to-date on annual contribution limits so that you can take advantage of the maximum savings possible.
- Take the time now to think about how you want your retirement years to look, so that you have a comfortable nest egg by the time retirement arrives.
- Make sure that you’re filing a joint tax return.
Other tips for retirement planning when one spouse doesn’t work
Whether you’re a stay-at-home parent, are temporarily off work, or don’t have an income for any other reason, a spousal IRA is just one great way to save up for your retirement years and invest the household income well.
Besides traditional IRA contributions, social security planning is another important aspect in regards to retirement planning when one spouse has a much lower earnings record. This is especially important for married couples in their late 50s. Assuming there is some work history, the non-working spouse should always claim their own benefit at 62, and then switch to a spousal benefit at full retirement age.
Have questions about your investment strategy?
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As experienced financial planners, we’ve been “through retirement” dozens of times. We’re here to walk with you through each step of the process to help you feel prepared and confident for the years ahead. We’re looking forward to getting to know you, your story, and your hopes for the future. Book a meeting today!
This material is not intended to replace the advice of a qualified tax advisor, attorney, or accountant. Consultation with the appropriate professional should be done before any financial commitments regarding the issues related to the situations above are made.
