A spousal IRA gives a non-working spouse a way to build wealth for retirement, even if they don’t have earned income of their own.
Spousal IRAs can be traditional or Roth accounts. What distinguishes a spousal IRA is simply that it’s opened by an income-earning spouse in the name of a non-working or lower-earning spouse.
If you’re married and thinking about your financial plan as a couple, it’s helpful to understand spousal IRA rules and how you can use these accounts to fund your goals.
What Is a Spousal IRA?
A spousal IRA is an IRA that’s funded by one spouse on behalf of another. This is a notable exception to the rule that IRAs must be funded with earned income. In this case, the working spouse can make contributions to an IRA for the non-working spouse, even if that person doesn’t have earned income.
The couple must be married, filing jointly, in order for the working spouse to be able to fund a spousal IRA.
For example, say that you’re the primary breadwinner for your family, and perhaps your spouse is a stay-at-home parent or the primary caregiver for their aging parents, and doesn’t have earned income. As long as you have taxable compensation for the year, you could open a spousal IRA and make contributions to it on your spouse’s behalf.
Saving in a spousal IRA doesn’t affect your ability to save in an IRA of your own. You can fund an IRA for yourself and an IRA for your spouse, as long as the total contributions for that year don’t exceed IRA contribution limits (more on that below), or your total earnings for the year.
Recommended: Understanding Individual Retirement Accounts (IRAs): A Beginner’s Guide
How Do Spousal IRAs Work?
Spousal IRAs work much the same as investing in other IRAs, in that they make it possible to save for retirement in a tax-advantaged way. The rules for each type of IRA, traditional and Roth, also apply to spousal IRAs.
What’s different about a spousal IRA is who makes the contributions. If you were to open an IRA for yourself, you’d fund it from your taxable income. When you open an IRA for your spouse, contributions come from you, not them.
It’s also important to note that these are not joint retirement accounts. Your spouse owns the money in their IRA, even if you made contributions to it on their behalf.
Back to basics: How to Set Up an IRA: A Step-by-Step Guide
Spousal IRA Rules
The IRS sets the rules for IRAs, which also govern spousal IRAs. These rules determine who can contribute to a spousal IRA, how much you can contribute, how long you have to make those contributions, and when you can make withdrawals.
Eligibility
Married couples who file a joint tax return are eligible to open a spousal IRA for the non-working spouse. As long as one spouse has taxable compensation and, in the case of a Roth IRA, they meet income restrictions, they can open an IRA on behalf of the other spouse.
Taxable compensation includes money earned from working, such as wages, salaries, tips, or bonuses. Generally, any amount included in your income is taxable and must be reported on your tax return unless it’s excluded by law.
That said, a traditional IRA does not have income requirements; a Roth IRA does.
Maximum Annual Contributions
One of the most common IRA questions is how much you can contribute each year. Spousal IRAs have the same contribution limits as ordinary traditional or Roth IRAs. These limits include annual contribution limits, income caps for Roth IRAs, and catch-up contributions for savers 50 or older.
For tax-year 2024, you can contribute up to $7,000 to a traditional or Roth IRA; if you’re 50 or older you can add another $1,000 (the catch-up contribution) for a total maximum of $8,000.
Remember, you can fund a spousal contribution as well as your own IRA up to the limit each year, assuming you’re eligible. That means for the 2024 tax year, a 35-year-old couple could save up to $14,000 in an individual and a spousal IRA.
A 50-year-old couple can take advantage of the catch-up provision and save up to $16,000.
Contribution Limits for Traditional and Roth IRAs
There are a couple of rules regarding contribution limits; these apply to ordinary IRAs and spousal IRAs alike.
• First, the total contributions you can make to an individual IRA and/or spousal IRA cannot exceed the total taxable compensation you report on your joint tax return for the year.
• If neither spouse is covered by a workplace retirement account, contributions to a traditional spousal IRA would be deductible. If one spouse is covered by a workplace retirement account, please go to IRS.gov for details on how to calculate the amount of your contribution that would be deductible, if any.
There is an additional restriction when it comes to Roth IRAs. Whether you can make the full contribution to a spousal Roth IRA depends on your modified adjusted gross income (MAGI).
• Married couples filing jointly can contribute the maximum amount to a spousal Roth IRA for tax year 2024 if their MAGI is less than $230,000.
• They can contribute a partial amount if their income is between $230,000 and $240,000.
• If a couple’s income is $240,000 or higher, they are not eligible to contribute to a Roth or spousal Roth IRA.
Contribution Deadlines
The annual deadline for making an IRA contribution for yourself or a spouse is the same as the federal tax filing deadline. For example, the federal tax deadline for the 2024 tax year is April 15, 2025. You’d have until then to open and fund a spousal IRA for the 2024 tax year.
Filing a tax extension does not allow you to extend the time frame for making IRA contributions.
Withdrawal Rules
Spousal IRAs follow the same withdrawal rules as other IRAs. How withdrawals are taxed depends on the type of IRA and when withdrawals are made.
Here are a few key spousal IRA withdrawal rules to know:
• Qualified withdrawals from a traditional spousal IRA are subject to ordinary income tax.
• Early withdrawals made before age 59 ½ may be subject to a 10% early withdrawal penalty, unless an exception applies (see IRS rules).
• Spouses who have a traditional IRA must begin taking required minimum distributions (RMDs) at age 72, or 73 if they turned 72 after Dec. 31, 2022. Roth IRAs are not subject to RMDs, unless it’s an inherited Roth IRA.
• Roth IRA distributions are tax-free after age 59 ½, as long as the account has been open for five years, and original Roth contributions (i.e., your principal) can always be withdrawn tax free.
• A tax penalty may apply to the earnings portion of Roth IRA withdrawals from accounts that are less than five years old.
Whether it makes more sense to open a traditional or Roth IRA for a spouse can depend on where you are taxwise now, and where you expect to be in retirement.
Deducting contributions may help reduce your taxable income, which is a good reason to consider a traditional IRA. On the other hand, you might prefer a Roth IRA if you anticipate being in a higher tax bracket when you retire, as tax-free withdrawals would be desirable in that instance.
Recommended: Inherited IRA Distribution Rules Explained
Pros and Cons of Spousal IRAs
Spousal IRAs can help married couples to get ahead with saving for retirement and planning long-term goals, but there are limitations to keep in mind.
Pros of Spousal IRAs
• Non-working spouses can save for retirement even if they don’t have income.
• Because they’re filing jointly, couples would mutually benefit from the associated tax breaks of traditional or Roth spousal IRAs.
• Spousal IRAs can add to your total retirement savings if you’re also saving in a 401(k) or similar plan at work.
• The non-working spouse can decide when to withdraw money from their IRA, since they’re the account owner.
Cons of Spousal IRAs
• Couples must file a joint return to contribute to a spousal IRA, which could be a drawback if you typically file separately.
• Deductions to a spousal IRA may be limited, depending on your income and whether you’re covered by a retirement plan at work.
• Income restrictions can limit your ability to contribute to a spousal Roth IRA.
• Should you decide to divorce, that may raise questions about who should get to keep spousal IRA assets (although the spousal IRA itself is owned by the non-working spouse).
Spousal IRAs, Traditional IRAs, Roth IRAs
Because you can open a spousal IRA that’s either a traditional or a Roth style IRA, it helps to see the terms of each. Remember, spouses have some flexibility when it comes to IRAs, because the working spouse can have their own IRA and also open a spousal IRA for their non-working spouse. To recap:
• Each spouse can open a traditional IRA
• If eligible, each spouse can open a Roth IRA
• One spouse can open a Roth IRA while the other opens a traditional IRA.
Bear in mind that the terms detailed below apply to each spouse’s IRA.
| Spousal IRA | Traditional IRA | Roth IRA | |
|---|---|---|---|
| Who Can Contribute |
Spouses may contribute to a traditional or Roth spousal IRA, if eligible. Roth spousal IRA eligibility is determined by filing status and income (see column at right). |
Anyone with taxable compensation. | Eligibility to contribute determined by tax status and income. Married couples filing jointly must earn less than $240,000 to contribute to a Roth. |
| 2024 Annual Contribution Limits | $7,000; $8,000 for those 50 and up (note that each spouse can have an IRA and contribute up to the annual limit) | $7,000; $8,000 for those 50 and up | $7,000; $8,000 for those 50 and up. |
| Tax-Deductible Contributions | Yes, for traditional spousal IRAs* | Yes* | No |
| Withdrawals | Withdrawal rules for both types of spousal IRAs are the same as for ordinary IRAs (see columns at right). |
Qualified distributions are taxed as ordinary income. Taxes and a penalty apply to withdrawals made before age 59 ½ , unless an exception applies, per IRS.gov. |
Original contributions can be withdrawn tax free at any time (but not earnings). Distributions of earnings are tax free at 59 ½ as long as the account has been open for 5 years. |
| Required Minimum Distributions | Yes, for traditional spousal IRAs. RMDs begin at age 72** | Yes, RMDs begin at age 72** | RMD rules don’t apply to Roth IRAs. |
* Deduction may be limited, depending on your income and whether you or your spouse are covered by a workplace retirement plan.
** You must take withdrawals from a traditional IRA once you reach 72 (or 73, if you turn 72 in 2023 or later).
Dive deeper: Roth IRA vs. Traditional IRA: Which IRA is the right choice for you?
Creating a Spousal IRA
Opening a spousal IRA is similar to opening any other type of IRA. Here’s what the process involves:
• Find a brokerage. You’ll first need to find a brokerage that offers IRAs; most will offer spousal IRAs. When comparing brokerages, pay attention to the investment options offered and the fees you’ll pay.
• Open the account. To open a spousal IRA, you’ll need to set it up in the non-working spouse’s name. Some of the information you’ll need to provide includes the non-working spouse’s name, date of birth, and Social Security number. Be sure to check eligibility rules.
• Fund the IRA. If you normally max out your IRA early in the year, you could do the same with a spousal IRA. Or you might prefer to space out contributions with monthly, automated deposits. Be sure to contribute within eligible limits.
• Choose your investments. Once the spousal IRA is open, you’ll need to decide how to invest the money you’re contributing. You may do this with your spouse or allow them complete freedom to decide how they wish to invest.
As long as you file a joint tax return, you can open a spousal IRA and fund it. It doesn’t necessarily matter whether the money comes from your bank account, your spouse’s, or a joint account you share. If you’re setting up a spousal IRA, you can continue contributing to your own account and to your workplace retirement plan if you have one.
The Takeaway
Spousal IRAs can make it easier for couples to map out their financial futures even if one spouse doesn’t work. The sooner you get started with retirement saving, the more time your money has to grow through compounding returns.
FAQ
What are the rules for a spousal IRA?
Spousal IRA rules allow a spouse with taxable compensation to make contributions to an IRA on behalf of a non-working spouse. The non-working spouse owns the spousal IRA and can decide how and when to withdraw the money. Spousal IRA withdrawals are subject to the same withdrawal rules as traditional or Roth IRAs, depending on which type of account has been established.
Is a spousal IRA a good idea?
A spousal IRA could be a good idea for married couples who want to ensure that they’re investing as much money as possible for retirement on a tax-advantaged basis. In theory, a working spouse can fund their own IRA as well as a spousal IRA, and contribute up to the maximum amount for each.
Can I contribute to my spouse’s traditional IRA if they don’t work?
Yes, that’s the idea behind the spousal IRA option. When a wife or husband doesn’t have taxable income, the other spouse can make contributions to a spousal traditional IRA or Roth IRA for them. The contributing spouse must have taxable compensation, and the amount they contribute each year can’t exceed their annual income amount or IRA contribution limits.
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