Spousal IRA Contribution and Deduction Limits for 2019 and 2020

Determine the most you can put into these unique IRAs for couples

Doing their best to budget wisely
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Just because you don’t earn income from a job, this doesn’t mean you can’t save for retirement. As long as your spouse has taxable compensation, such as a salary, wages, commissions, or net income from self-employment, she can set up a tax-advantaged retirement account on your behalf. It’s referred to as a spousal IRA and it works similarly to traditional and Roth Individual Retirement Arrangements (IRAs).

In fact, as a married couple, you can both contribute to your own separate IRA if you file your 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 the taxable compensation reported on your joint tax return or the annual contribution limit on IRAs times two. For traditional IRAs, you both had to be younger than 70.5 to contribute in 2019; there is no age restriction for contributing to a traditional IRA as of January 1, 2020. Likewise, there is no age restriction for contributing to Roth IRAs.

Spousal IRA Contribution Limits

The same annual limits apply to IRAs whether they are set up on behalf of a spouse or not. In 2020, 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 extra $1,000 is a catch-up contribution that's designed to help people save more as they get closer to retirement age.) So a married couple could contribute up to the lesser of their joint taxable compensation or $12,000 to two IRAs ($14,000 if they’re 50 or older.)

These limits were the same in 2019.

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 2019 and 2020 if neither is covered by a defined-contribution plan, such as a 401(k) or an IRA-based plan, 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 2020 tax year, here are the income parameters:

If your MAGI as a married couple filing jointly is ... You can take ...
$104,000 or less a full deduction up to the contribution limit.
more than $104,000 but less than $124,000 a partial deduction.
$124,000 or more  no deduction.

In 2019, the following income ranges applied:

If your MAGI as a married couple filing jointly is ... You can take ...
$103,000 or less a full deduction up to the contribution limit.
more than $103,000 but less than $123,000 a partial deduction.
$123,000 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 2019 and 2020 ($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 you or your spouse is based on your MAGI. These are the Roth IRA income phase-out ranges for 2020:

If your MAGI as a married couple filing jointly is ... You can contribute ...
less than $196,000 up to $6,000, or $7,000 if you’re 50 or older.
$196,000 or more but less than $206,000 a reduced amount.
$206,000 or more zero.

Here are the income parameters for 2019 contributions:

If your MAGI as a married couple filing jointly is ... You can contribute ...
less than $193,000 up to $6,000, or $7,000 if you’re 50 or older
more than $193,000 but less than $203,000 a reduced amount.
$203,000 or more zero.

To determine the partial amount you may contribute in 2020 if you are in that middle band of incomes, first subtract $196,000 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

If you contribute more than your contribution limit, put money into a traditional IRA after age 70.5 in 2019, or make an ineligible rollover to an IRA, 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 as well as 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 year. For 2020, you have until April 16, 2021 to make a traditional or Roth IRA contribution; for 2019, the deadline is April 15, 2020.

Article Sources

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