Learn How to Make a Spousal IRA Contribution

Coins in Jar With Text Savings
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Many couples are missing out on a great way to save—contributing to a spousal IRA for a non-working spouse. 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.

You Must Have Earned Income

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 enough earned income, you can make a spousal IRA contribution for a spouse that has no earned income.

Contribution limits for a spousal IRA are the same limits as for traditional and Roth IRAs. For 2019, that means a maximum allowable IRA contribution of $6,000 if you are under age 50, and $7,000 if you are 50 or older.

Determine If Spousal IRA Should Be Roth or Traditional

If your income is not too high, then you can make a spousal IRA contribution to either a traditional IRA or a Roth IRA. For 2019, if your modified adjusted gross income (MAGI) is less than $203,000, then you can make a spousal Roth IRA contribution on behalf of a non-working spouse.

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 because Roth IRA withdrawals do not count in certain formulas that are part of the IRS tax code.

There are no income limitations on traditional IRA contributions, but your income level will determine how much of the contributions will be tax-deductible.

If Using a Traditional IRA, See if You Can Deduct It

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, then you should check if your spousal IRA contribution 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 are covered by a company-sponsored retirement plan (either through your employer or, if self-employed, through your own plan) then your eligibility for deductions depends on your income level. If your income is too high, the IRA contribution is not deductible. For 2019, you can deduct the entire amount of your traditional IRA contribution if your MAGI is below $103,000.

Even if you are 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).

Have a Younger Non-Working Spouse?

There is a maximum age limit for traditional IRA contributions, which is 70 1/2. However, if you are older than 70 1/2, but your spouse is younger, then you can still make contributions using spousal IRA rules.

For Roth IRAs, there is no maximum age limit.