Learn How to Make a Spousal IRA Contribution

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An Individual Retirement Account (IRA) requires earned income as a condition for contributing. But if you have a non-wage-earning spouse, they can still open and contribute to an IRA if 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.

Who Is Eligible for a Spousal IRA Contribution?

To make any type of IRA contribution, you must have earned income equal to or greater than the amount of the IRA contribution. For couples, as long as one of you has earned income and you file a joint federal income tax return, the non-working spouse can establish a traditional or Roth IRA and make a contribution to it. The working spouse can also make a contribution to their own IRA, with each spouse being eligible to make a contribution up to the annual limit.

Contribution limits for a spousal IRA are the same limits as for traditional and Roth IRAs. For 2021, as in 2020, 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 combined spousal IRA contributions can’t exceed the earned income you report on your joint tax return.

Determine If 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 savings vehicle.

There are no income limitations on contributing to a traditional IRA, making it an option for high and low earners alike. 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 ($206,000 in 2020). That said, many investors who are eligible to contribute to a Roth IRA choose to do so. Roth contributions go in after-tax and grow tax-free. In the long run, using a Roth may deliver a better outcome for you in retirement.

Consider Your Traditional IRA Deduction Potential

If your high level of income makes you ineligible to make Roth contributions, or you decide to go with a traditional IRA for another reason, you should check if your spousal IRA contribution will be tax-deductible. That's because there are no income limitations on traditional IRA contributions, but if you or your spouse also participate in an employer-sponsored retirement plan like a 401(k), your income level will determine how much of the contributions will be tax-deductible. If neither of you has a company-sponsored retirement plan, your traditional IRA contributions—including contributions to a spouse's traditional IRA—will be fully deductible.

If you're covered by a company-sponsored retirement plan (either through your employer or, if self-employed, through your own plan), your eligibility for deductions depends on your income level. If your income is too high, the IRA deduction may be limited. In 2021, if you're married filing jointly, and participate in a retirement plan at work, you can deduct the entire amount of your traditional IRA contribution if your MAGI is $105,000 or less (up from $104,000 or less in 2020).

Even if you're not eligible to take a deduction for the IRA contribution, you can still make a nondeductible IRA contribution, which in many cases can provide a backdoor entry into a Roth IRA. Nondeductible IRAs still grow tax-deferred and have the benefit of creditor protection (though specific creditor protections for IRAs vary by state law).

Your traditional IRA contributions will be fully deductible if neither you nor your spouse participates in a retirement plan at work. If one of you has a work plan, your deduction may be limited or altogether eliminated.

Spousal IRA Age Limits

For tax years 2020 and later, there is no maximum age limit for making regular contributions to traditional or Roth IRAs. Prior to 2020, you could not make traditional IRA contributions after turning 70.5, but you could still make Roth IRA contributions regardless of age.