How Married Couples Can Double Their Retirement Tax Benefits
With tax season in full swing, many couples are looking for last-minute ways to maximize their retirement savings and tax benefits. And if one spouse doesn’t work, they may miss out on the opportunity to move retirement assets into their name, not to mention reduced tax-deferred growth opportunities for the family.
One strategy that will remain available in 2024: making spousal IRA contributions . This can benefit couples where one spouse earns significantly less than the other or even has no income at all. Here’s how it works.
How Spousal IRA Contributions Can Double Your Retirement Tax Benefits
The IRA contribution limit for 2023 is $6,500 for those under 50 and $7,500 for those over 50. You can make IRA contributions for 2023 before the non-extended federal tax deadline (for income earned in 2023). Typically, you can only contribute to your own IRA up to these limits, which means you must have income that will allow you to do so. And as always, you can and should exceed these limits as much as possible if possible. However, with a spousal IRA , your spouse can also contribute up to the limit to an IRA in your name.
This effectively doubles the amount your family can spend in an IRA (pre-tax or Roth) each year. The only requirement is that the spouse owning the IRA must have enough earnings to cover both contributions.
For example, let’s say Alex earns $100,000 a year and her husband Kevin is a stay-at-home mom with no income. Alex can contribute $6,500 to his IRA. She can also contribute $6,500 to an IRA in Kevin’s name. That’s the total amount the family can now save in an IRA, not just Alex’s $6,500 limit.
How Spousal IRAs Work
A spousal IRA is not actually a separate type of IRA account—rather, it is simply a traditional or Roth IRA set up in the name of a spouse who has little or no income. This may include people caring for children or other family members, workers returning to school, or people leaving work for another reason.
To be eligible for a spousal IRA, you must meet several requirements:
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You must file your taxes as “jointly married.”
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The earning/contributing spouse must earn enough to cover contributions to both their own IRA and the spouse’s account.
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There are income-based contribution limits for a Roth IRA and tax deduction limits for a traditional IRA depending on your tax filing status. This may affect your account type selection.
One of the keys to a spousal IRA is that ownership remains with the person named in the account, regardless of which spouse contributes the funds. This also means that an existing IRA funded while the account owner was working can function as a spousal IRA if that person no longer receives income and their partner is simply contributing funds to the account on their behalf.
Bottom line
Eligible couples can use a spousal IRA to double their contributions to a traditional individual retirement account (IRA), even if only one partner has income, and deduct a total of $13,000 (rather than $6,500 for an individual beneficiary income) for 2023, provided they do so by April 15. So there’s still time for married couples to make spousal IRA contributions and double their tax-advantaged retirement savings—just be sure to indicate which spouse the contribution is for when you send the funds to your IRA provider.
With a little planning, this spousal IRA strategy can significantly increase the retirement funds of many households. And you can get an immediate tax credit on your taxes if you make contributions before Tax Day, so don’t leave this tax benefit on the table.