Learn How to Make a Spousal IRA Contribution

Couple using digital tablet in kitchen
••• Jose Luis Pelaez Inc / Getty Images

To contribute to an Individual Retirement Account (IRA), you need to have earned income. If you have a spouse that doesn't work, they can also open and contribute to an IRA since you have earned income. This is known as a spousal IRA, and it's a great way for couples to save for the future.

You may not be aware of the spousal IRA rules that allow for this, but it's a simple process. Here's how it works and how to tell if you qualify.

Key Takeaways

  • To make an IRA contribution, you must have earned income equal to or greater than the amount of the IRA contribution.
  • As long as one spouse has earned income and you file a joint tax return, the non-working spouse can open a traditional or Roth IRA and contribute to it.
  • There are no income limitations on contributing to a traditional IRA, but there are for Roth IRAs.
  • For tax years 2021 and later, there is no maximum age limit for making contributions to traditional or Roth IRAs.

Who Is Eligible for a Spousal IRA Contribution?

To make an IRA contribution, you must have earned income equal to or greater than the amount you're putting in. For couples, as long as one of you has earned income and you file a joint federal income tax return, the spouse who isn't working can open a traditional IRA or Roth IRA and contribute to it. At the same time, the working spouse can also add to their own IRA. Each spouse can add funds to the annual limit.

The limits for a spousal IRA are the same as other IRAs. For 2021, the maximum allowable IRA contribution is $6,000 if you're under age 50 and $7,000 if you're 50 or older.

Your total IRA contributions for both accounts can’t exceed the earned income you report on your joint tax return.

Decide If the Spousal IRA Should Be Traditional or Roth

Although you can make a spousal IRA contribution to either a traditional IRA or a Roth IRA, your income may help you decide on one or the other account type.

There are no income limits for adding to a traditional IRA. This makes it a good option for both high and low earners. That's not the case with Roth IRAs. For 2021, you can only make a spousal Roth IRA contribution if your modified adjusted gross income (MAGI) is less than $208,000.

Many people who can place money in a Roth IRA choose to do so. You contribute to a Roth after-taxes, and they grow tax-free. A Roth may give you a better outcome when you retire if you pay fewer taxes now than you would in retirement.

Consider Your Traditional IRA Deduction Potential

You might be able to deduct spousal IRA contributions from your taxes. Your income might be too high for a Roth. In this case, you can contribute as much as you want to a traditional IRA and deduct the contributions if you and your spouse meet the income criteria.

You or your spouse might have an employer-sponsored retirement plan like a 401(k). Your income level will drive how much of the funds you can deduct from your taxes. If neither of you has a company retirement plan, your traditional IRA contributions will be fully deductible. This also includes adding funds to a spouse's traditional IRA.

The funds you put in your IRA will be fully deductible if neither you nor your spouse has a retirement plan at work. If one of you has a work plan, it might limit your deduction or cancel it.

If your income is too high, the IRA deduction may be limited. In 2021, if you're married, filing jointly, and have a plan at work, you can deduct the entire amount of your IRA contribution if your MAGI is $104,000 or less.

Even if your income keeps you from taking a deduction for your IRA funds, you can still make a nondeductible IRA contribution. This can lead you to an opportunity to use what's called a backdoor entry into a Roth IRA. Backdoor entry is a term for rolling a traditional IRA into a Roth.

Nondeductible IRAs still grow, defer taxes, and protect your money from creditors (though state laws vary on creditor protection for IRAs).

Spousal IRA Age Limits

Before 2020, you could not make traditional IRA contributions after turning 70.5, but you could still make Roth IRA contributions no matter what your age is. For tax years 2021 and later, there is no maximum age limit for making contributions to traditional or Roth IRAs.

Required minimum distribution (RMD) laws remain the same for spousal IRAs. Starting the year you turn 72, you have to take the RMDs. Since the age limit for contributing has been removed, you can make your withdrawals and keep adding to your IRA if you have earned income.

This does make sense, as it allows you to maintain a higher balance in your account while you or your spouse are making withdrawals.