Just because you don’t earn income from a job, that doesn’t mean you can’t save for retirement.
As long as your spouse has taxable compensation, they can set up a tax-advantaged retirement account on your behalf. This compensation can include salary, wages, commissions, or net income from self-employment.
This kind of account is referred to as a "spousal IRA," and it works similarly to traditional and Roth individual retirement accounts (IRAs). In fact, as a married couple, you can both contribute to your own separate IRA if you file taxes jointly, and at least one of you earns enough money to meet the funding rules for two IRAs. However, combined IRA contributions for both can’t be more than the lesser of either the taxable compensation reported on your joint tax return or the annual contribution limit on IRAs times two.
There is no age restriction for contributing to a traditional IRA, as of December 2021. Likewise, there is no age restriction for contributing to a Roth IRA.
Spousal IRA Contribution Limits
The same annual limits apply to IRAs, whether they are set up on behalf of a spouse or not. In tax years 2021 and 2022, you can contribute up to $6,000 to a traditional IRA, or $7,000 if you're 50 or older, as long as your taxable compensation is at least that much.
The added $1,000 is a catch-up contribution designed to help people save more as they get closer to retirement age. A married couple could contribute $12,000 to two IRAs, or $14,000 if they’re 50 or older.
Spousal IRA Deduction Limits
Just like with other traditional IRAs, a couple can deduct the full contribution to a traditional spousal IRA from federal income taxes in tax years 2021 and 2022 if neither is covered by a defined-contribution plan, such as a 401(k) or an IRA, or a defined-benefit plan, such as a pension plan that's provided by an employer.
You may be considered covered by a plan if any contributions are made to your account.
If you are covered by any of these employer retirement plans, the amount you can deduct for your contribution to a spousal IRA is based on your modified adjusted gross income (MAGI).
For the 2021 tax year, the following ranges apply:
|If your MAGI as a married couple filing jointly is...||You can take...|
|$105,000 or less||a full deduction up to the contribution limit|
|more than $105,000 but less than $125,000||a partial deduction|
|$125,000 or more||no deduction|
For the 2022 tax year, the income parameters will be:
|If your MAGI as a married couple filing jointly was...||You could take...|
|$109,000 or less||a full deduction up to the contribution limit|
|more than $109,000 but less than $129,000||a partial deduction|
|$129,000 or more||no deduction|
Spousal Roth IRA Differences
The contribution limit for Roth accounts is the same as it is for traditional IRAs: your total contributions to traditional and Roth IRAs cannot exceed $6,000 in tax years 2021 and 2022 (or $7,000 if you're 50 or older).
However, Roth accounts get different tax treatment. Unlike traditional IRAs, which are funded with pre-tax contributions and are therefore tax-deductible, Roth IRA contributions are not tax-deductible, because they’re funded with after-tax contributions.
Moreover, the withdrawals you’ll eventually make from Roth IRAs will not be taxed again, whereas traditional IRA withdrawals are taxable.
Your eligibility to contribute to a Roth IRA for yourself or your spouse is based on your MAGI.
Here are the contribution limits for tax year 2021:
|If your MAGI as a married couple filing jointly is...||You can contribute...|
|less than $198,000||up to $6,000 ($7,000 if age 50 or older)|
|$198,000 or more but less than $208,000||a reduced amount|
|$208,000 or more||zero|
The Roth IRA contribution limits for tax year 2022 will be:
|If your MAGI as a married couple filing jointly was...||You could contribute...|
|less than $204,000||up to $6,000 ($7,000 if age 50 or older)|
|$204,000 or more but less than $214,000||a reduced amount|
|$214,000 or more||zero|
To determine the partial amount you may contribute if you are in that middle band of incomes, first subtract $198,000 for 2021 or $204,000 for 2022 from your MAGI. Divide the resulting number by $10,000 if you are filing jointly. Then, multiply that number by the maximum contribution limit ($6,000 or $7,000, whichever applies). Finally, subtract that number from the maximum contribution limit.
Penalties for Excess Spousal IRA Contributions
You may have made excess contributions if you:
- Contributed more than your contribution limit
- Made an ineligible rollover to an IRA
In these cases, the excess amount will be taxed at 6% per year as long as it remains in the IRA, up to a maximum tax of 6% of the combined value of all your IRAs at the end of the year.
The best way to avoid paying the tax is to take out any excess contributions from the IRA by your tax-filing deadline, and to withdraw any income earned on the excess contributions.
Spousal IRA Contribution Deadlines
While it's often easier for people to make regular contributions throughout the year, you don't have to do that to take advantage of spousal IRA benefits. You can make a single lump-sum contribution up until the deadline to file your taxes for that particular tax year.
Frequently Asked Questions (FAQs)
How do RMDs work with spousal IRAs?
Required minimum distributions (RMDs) for spousal IRAs are the same as for a standard IRA. It's considered the spouse's IRA, so the RMDs will depend on the spouse's age. Roth IRAs are not subject to RMDs unless they're inherited. This could apply to a spouse who inherits their partner's IRA after becoming widowed, but it wouldn't apply to a spousal Roth IRA.
What are the rules for converting a spousal IRA into a Roth IRA?
An IRA conversion involves changing the account type to take advantage of different tax breaks. It can be done with any traditional IRA, including spousal IRAs. An inherited IRA can also be converted into a Roth IRA. Keep in mind that a Roth conversion will trigger taxes as all the funds transfer from a pre-tax traditional IRA to a post-tax Roth IRA. Some will find that the benefits of long-term, tax-free growth outweigh the immediate tax consequences. Others will prefer to keep the IRA as it is, to avoid that tax bill.
Internal Revenue Service. "IRA FAQs."
Internal Revenue Service. "Traditional and Roth IRAs."
Internal Revenue Service. "Retirement Topics - IRA Contribution Limits."
Internal Revenue Service. "IRA Deduction Limits."
Internal Revenue Service. "Income Ranges for Determining IRA Eligibility Change for 2021."
Internal Revenue Service. "IRS Announces 401(k) Limit Increases to $20,500."
Internal Revenue Service. "Traditional and Roth IRAs."
Internal Revenue Service. "Amount of Roth IRA Contributions That You Can Make for 2021."
Internal Revenue Service. "Amount of Roth IRA Contributions That You Can Make for 2022."
Internal Revenue Service. "Retirement Plan and IRA Required Minimum Distributions FAQs."