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Spousal IRA Contributions

Funding a traditional or Roth IRA each year can be an integral part of planning for retirement. However, you must generally have earned income from employment to contribute to either a traditional or Roth IRA. An exception to this rule is the spousal IRA contribution. Here are some key takeaways:

  • If one spouse has earned income, the family can make 2020 IRA contributions for the nonworking spouse by May 17, 2021.
  • Traditional and Roth IRAs have the same aggregated contribution limit of $6,000 ($7,000 if age 50 or older) per individual in 2020.
  • The working spouse’s IRA and the nonworking spouse’s IRA must be established and held separately in each name and under each Social Security number, as IRAs cannot be set up as joint accounts.

Eligibility

If the working spouse wants to make an IRA contribution on the nonworking spouse’s behalf, the working spouse must:

  1. File taxes as married filing jointly (married filing separately cannot utilize a spousal IRA contribution).
  2. Have earned income that is at least as much as the total contribution to the IRAs.

For example, if a working spouse (age 65) only has earned income of $10,000 in 2020, a $7,000 contribution could be made to the working spouse’s IRA and a $3,000 contribution could be made to the nonworking spouse’s IRA or vice versa. The total contribution between both IRAs cannot exceed the working spouse’s earned income, and each individual IRA contribution cannot exceed $6,000 ($7,000 if age 50 or older).

Traditional IRA Versus Roth IRA

Traditional and Roth IRAs have different rules for eligibility and deductibility based on age, retirement plan coverage, and modified adjusted gross income (MAGI). The below chart will outline these differences:


  Traditional IRA Roth IRA
Eligibility
  • Earned income
  • Earned income
  • MAGI below $196,000 for full contribution if married filing jointly (phaseout for partial contribution is $196,000 - $206,000)
Deductibility
  • If the working spouse is covered by a retirement plan, the nonworking spouse’s contribution is fully deductible if MAGI is below $196,000 (phaseout for partial deduction is $196,000 - $206,000)
  • If the working spouse is not covered by a retirement plan, the nonworking spouse’s contribution is fully deductible
  • No deduction
Benefits
  • Potential tax deduction
  • Tax-deferred growth*
  • Tax-free growth
  • Contributions can be distributed tax- and penalty-free at any age


If you’re not funding an IRA, you may be missing out on an exceptional opportunity. Contact a Stifel Financial Advisor today to find out how a spousal IRA contribution may benefit you. It is always recommended that you seek the aid of a competent tax advisor or accountant to assist with tax advice and guidance.

* All non-taxed dollars will be taxed as ordinary income when withdrawn, and distributions taken before age 59½ may incur a 10% penalty.
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