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What is a Spousal IRA and How New Business Owners can use it to Save for Retirement

spousal iraWant to save for retirement but you don’t have an earned income (or it is a small earned income)?

Wish you had access to the benefits of an IRA, but that earned income thing is setting you back?

Not to worry, you may be able to use a spousal IRA.

Here are the details on a spousal IRA.

Short version: it is a traditional or ROTH IRA, but instead of using your income to meet the contribution requirements you use your spouses income.

Originally with an IRA you had to have earned income in order to contribute.  Realizing that was not fair to stay at home parents, a rule was put in place that if you are married and filing a joint return you can use your spouses earned income to qualify for contributing to an IRA.  Which is now referred to as the Spousal IRA.

Thus if a mom or dad decides to stay at home, if their spouse makes over the contribution limits for two people– you can contribute for both spouses.

Now here is where it gets exciting for new business owners – the rule actually says that the spouse that earns the lesser amount is the one who can use their spouse’s income.

So let’s say your husband has a regular job and you just started a business.  For the year he made $50,000 and you made $2,000.  For the year 2013 and 2014 you both could contribute to your own IRA’s because he made over $11,000 (the contribution limit is $5,500 per person for those years).

Quick Summary Run Down on Spousal IRA:

  • Must be married and be filing a joint return
  • Must be in separate accounts – so you have one IRA account and your spouse has another – the money is not put into one persons name.  (IRA’s are not joint owned).
  • Money can come from anywhere to contribute, does not have to come directly from income.  So you could use gift money to fund your IRA.  As long as you or your spouse meet the requirement of earning it – the IRS does not care where the actual money came from.
  • Must be under 70 1/2 to contribute to a Traditional IRA.
  • Same contribution limits and deduction requirements are in place.  Check out more on the Traditional and Roth for that information (or check with a CPA).
  • The spouse that earns the least is the only one this applies to – meaning you are the high income earner, but are still under the full contribution limit you can only put in the amount that you made.  So if you earned $3,000 and your spouse earned $2,000, the high earner could still only contribute $3,000 to theirs and then the other contributions would have to go to the spousal account.

Remember to check with a CPA or tax advisor for more specific information on your eligibility for contributing and deducting.  The tax laws don’t always make it easy to understand so use a trained professional if you are confused! (I do!)

Now it is action time: If you are not saving for retirement because you don’t have a 401K, but you or your spouse have earned income – set up an IRA account today and get to saving for your future!

Roger @ The Chicago Financial Planner says December 10, 2013

Excellent post Andrea and this can be a solid way for anon-working spouse to still contribute to his/her retirement and is a solid financial planning tool.

    Andrea says December 10, 2013

    Thank you Roger! We used this when I was first getting started and it was a great help!

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