Are you and your spouse looking to maximize your retirement savings and tax breaks? With tax season in full swing, many couples are seeking ways to increase their retirement assets and reduce their tax liabilities. This is especially true if one spouse isn’t working, as they may be missing out on the opportunity to grow their retirement assets in their name. But don’t worry, there’s a strategy that can help you double your retirement tax breaks, even if one spouse isn’t earning.
What are Spousal IRA Contributions?
One strategy that remains available in 2024 is making spousal IRA contributions. This can significantly benefit couples where one spouse earns considerably less than the other or even has no income at all. The IRA contribution limits for 2023 are $6,500 for those under age 50, and $7,500 for those age 50 or older. You can make 2023 IRA contributions until the unextended federal tax deadline (for income earned in 2023).
Generally, you can only contribute up to these limits for your own IRA, meaning you must have an income that will allow you to do so. However, with a spousal IRA, your spouse can also contribute up to the limit in an IRA under your name, effectively doubling the amount your household can save in IRAs each year.
How Spousal IRA Works
For instance, let’s say Alex earns $100,000 per year and her husband Kevin is a stay-at-home dad with no income. Alex can contribute $6,500 to her own IRA. She can also contribute $6,500 to an IRA that is under Kevin’s name. That’s $13,000 total that the household can now save in IRAs, rather than just Alex’s $6,500 limit.
A spousal IRA isn’t actually a separate type of IRA account—rather, it’s just a traditional IRA or Roth IRA set up in the name of a spouse who has little to no income. This may include those who are caregivers for children or other family members, workers who have returned to school, or people who have left the workforce for another reason.
Eligibility for a Spousal IRA
To be eligible for a spousal IRA, you have to meet a few requirements. You must file taxes as “married filing jointly.” The earning/contributing spouse must make enough to cover the contributions to both their own IRA and the spousal account. There are income-based contribution limits for Roth IRAs and tax deduction limits for traditional IRAs based on your tax filing status. These may affect which type of account you select.
One key to a spousal IRA is that ownership stays with the person named on the account, no matter which spouse is contributing the funds. This also means that an existing IRA—funded while the owner of the account was in the workforce—can function as a spousal IRA if that person is no longer earning income and their partner simply contributes to the account on their behalf.
Benefits of a Spousal IRA
Eligible couples can use a spousal IRA to double their contributions to traditional individual retirement accounts (IRAs) even if only one partner has an income, and deduct a total of $13,000 (rather than $6,500 for the individual income earner) for 2023, as long as they do so by April 15. So there is still time for married couples to make spousal IRA contributions and double their tax-advantaged retirement savings—just be sure to specify which spouse the contribution is for when sending funds to your IRA provider.
With a little planning, this spousal IRA strategy can significantly boost many households’ retirement funds. And you can get an immediate tax deduction on your taxes if you make the contributions prior to tax day, so don’t leave this tax break on the table.
Doubling Down on Retirement
Maximizing your retirement savings and tax breaks as a married couple doesn’t have to be a daunting task. By understanding and utilizing strategies like the spousal IRA, you can effectively double your retirement tax breaks and secure a more comfortable future. Remember, it’s never too late to start planning for your retirement. So, take advantage of these strategies today and watch your retirement savings grow.
Remember, the key to a successful retirement is planning and making informed decisions. So, don’t wait, start planning for your retirement today and secure a financially stable future for you and your spouse.
