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Spousal IRA

A spousal individual retirement account (IRA) allows a couple to put more money into a tax-deferred IRA or tax-free Roth IRA than if the couple had just one IRA. Any money that you put away will grow tax-deferred or tax-free until you take it out in retirement. The benefit of a spousal Roth IRA is that you can move your savings to a tax-free account and never be taxed on the earnings, while allowing growth in the account. As long as you're over age 59 1/2 you can take money out of an IRA without penalty. This is true with a Roth as well, and in addition the Roth IRA allows you to keep your investment in the IRA as long as you wish – there's no required minimum distribution date.

Putting money into any IRA, including a spousal IRA, shelters the earnings from tax either temporarily (in the case of a traditional IRA, where the money is taxed when you withdraw it) or permanently (in the case of a Roth IRA where money goes in after tax and grows tax-free). When doing your retirement planning, "general" rules of thumb – such as husbands are usually older than their wives and that women live longer than men – are not always true in fact. Why not protect yourself on the downside? The beneficiary of a spousal IRA could be the husband or the wife. Whomever lives longer will financially benefit from IRAs owned by each of the partners in a couple.

You can contribute to a spousal IRA if you file a joint return and your taxable compensation is less than that of your spouse. The most that you can contribute for the year to your IRA is the smaller of the following amounts:

$5,000 (in 2010), or $6,000 if you're over age 50, or
The total compensation of both spouses, reduced by your spouse's IRA contribution for the year plus any contribution for the year to a Roth IRA on behalf of your spouse

In addition, you cannot contribute to an IRA if you're covered under an employer retirement plan (such as a 401(k)) and earn more than $109,000 ($65,000 if single). To contribute the maximum amount to a Roth IRA, your AGI can't exceed $176,000, in 2009 ($120,000 for singles). Note that there is no AGI limit for a Roth IRA conversion.

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Tips Disclaimer
These tips contain information that may change over time as a result of new tax legislation. Although we make efforts to keep this information current, you should check with your tax advisor before taking action based upon any information contained in these tips.

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