If you are looking for a way to boost your Roth IRA contributions, but found you have reached your limit, you can get a little help by opening an IRA for your non-working spouse. One of the exceptions to the “earned income” rule that accompanies opening a Roth IRA is that of opening an account for your spouse.
These retirement savings accounts are sometimes called spousal IRAs. When you open a spousal IRA, it is in your partner’s name, so it re-starts the contribution limits for the IRA. If you have already maxed out your own IRA contributions, this can be a great opportunity for you to enhance your tax-advantaged retirement planning. In order for you to be able to double up on your Roth IRA contributions, though, you cannot have a joint IRA. You have to set up the IRA separately for your non-working spouse. This means that the IRA is set up using your partner’s name and Social Security number. With this set up, you can contribute up to $5,500 for your IRA and $5,500 for your spouse’s (or $6,500 apiece if you’re both age 50 or over), resulting in a yearly contribution of $11,000 (or $13,000). (These figures are for 2018 taxes. Remember that contribution limits may rise in future years, along with inflation.)
You can be named the beneficiary of the IRA, but once you start contributing to the account, the money is your spouse’s. This is important in the event that divorce could be in your future. When you are earning income, it is possible for you to make a spousal contribution to an IRA in the name of your partner. In order to take advantage of this situation, though, you have to be married, and your tax filing status must be “married filing jointly.” You cannot make a spousal contribution to an IRA if you are filing separately.
This type of IRA setup works like any other IRA—since it is an IRA. This means that rules regarding Traditional and Roth IRAs still apply. You get your immediate tax deduction for making a contribution to your non-working spouse’s Traditional IRA. You are also subject to the income phase-outs that come with contributions to a Roth IRA. Required minimum withdrawals for Traditional IRAs start at age 70½, and you have to be age 59½ to begin taking non-qualified distributions penalty-free from your Roth. Make sure you understand IRA rules before opening this type of account for your spouse.
Securing the Future
Providing spousal contributions to an IRA in your partner’s name can be a good way to boost your tax-advantaged income savings if you only have one income for your household. Additionally, it can be a way to provide a measure of financial security for a spouse who does a great deal of work – but who may not be financially compensated. You want to prepare for the future, and making use of the spousal IRA contribution is a great way to do this. It will increase your household savings, and save you money in taxes.
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