Why You Need A Spousal IRA

Women lag behind men in retirement savings for many reasons; one of those reasons is the decision to stay at home to raise children. During these years, women do not have the employer retirement savings that they would otherwise have access to. What if I told you there was a way to still invest/save for your retirement as a non-working spouse? Let me introduce you to and tell you why you need a spousal IRA.

What Is A Spousal IRA?

With a regular IRA, you need earned income in any given year to be eligible to contribute. However, A spousal IRA relaxes that earned income requirement. With a spousal IRA, a non-working spouse with low or no annual income from wages can still save for retirement and reap the tax benefits of an IRA

For example, Phillip & Sade are married. Sade works and earned $95,000 a year and Phillip does not work. Sade can contribute her own IRA, up to the maximum, and she can also contribute up to the maximum to her husband’s IRA (or vice versa of course).

Why You Need A Spousal IRA

A spousal IRA offers a couple an opportunity to boost their retirement savings, and at the same time gives the non-working spouse an investment in their own name. Further, while we hope that all marriages last forever, the reality is that many don’t. A spousal IRA can provide added comfort in the case of a divorce (pending the results of divorce proceedings).

How To Qualify For A Spousal IRA

1. Must be married and filing tax returns jointly
2. Must be legally married on December 31 of the year for which the contribution was made.
3. One spouse must be earning taxable income
4. Each spouse can make a contribution up to the current limit; however, the total of combined contributions can’t be more than the taxable compensation reported on the joint tax return

Contribution Limits & Deadlines

The Spousal IRA contribution limits, types, and deadlines are the same as standard IRAs.

Spousal IRA Equivalents Outside The USA

We’ve done the research for you! The Canadian equivalent is the Spousal RRSP. Within the UK, you could invest in LISA (Lifetime ISA).  The LISA is not linked to a spouse, but it is an investment vehicle that isn’t tied to earnings and it comes with a bonus. If you are in a different part of the world, and you don’t have the option of an equivalent, consider a standard brokerage account for you or your non-working spouse.

Final Thoughts

The spousal IRA can give a non-working spouse somewhat of a more equal footing when it comes to saving for retirement but unfortunately, many people are not aware that this option exists.

Is there a non-working spouse in your life that needs to open a spousal IRA?  Please share this post with them!  Opening and funding a spousal IRA can be a great financial goal for the year.

Happy Investing!