Answers to five of the most commonly asked questions about spousal IRAs

Maximizing contributions to retirement accounts is an important goal for many couples who want to maintain their lifestyle through a retirement that could last 30 years or more. Yet married investors may be unaware that if one spouse currently has little to no income, they can still contribute to an individual retirement account (IRA) based on the working spouse’s earned income. Expanding a retirement portfolio with spousal IRA contributions helps married couples increase their total contributions and maximize their exposure to potential tax-advantaged growth—ultimately putting them closer to their retirement goals.

Spousal IRA contributions are a valuable tool to help couples continue to save. Here are answers to the five most common questions about spousal IRA contributions:

A spousal IRA is not considered a joint retirement accounts. It’s a regular IRA that is opened, and owned, in the name of the nonworking spouse. In other words, account ownership is not dependent on who funds the account.

To contribute to an IRA, an individual must have earned income. Spousal IRA contributions eliminate that requirement, allowing an individual with limited income or no earnings to save for retirement on a tax-advantaged basis based on the earnings of his or her spouse. Additionally, spousal IRA contributions can fund an IRA that may already be established for the nonworking spouse.

To be eligible to make spousal IRA contributions, the couple must be married and file their taxes jointly. Their combined income and earnings must be equal to or exceed their combined IRA contributions up to the contribution limits.

Spousal IRA contributions are most commonly seen in situations where one spouse steps out of the workforce to raise children. A spousal IRA can also be used if a spouse has lost their job or even retired, as long as the other spouse is still working and has earned income.

Spousal IRA contributions are subject to the contribution limits and catch-up provisions of the Traditional and Roth IRAs in which they’re invested.

The most important role that spousal IRA contributions can play in a retirement savings plan is enabling a nonworking spouse to keep accumulating their own retirement savings during the period when they are out of the workforce.

It’s also a way to continue to fortify the overall household’s retirement savings during this time by contributing to IRAs for both spouses. This approach doubles their contribution amounts, potentially to $14,000 or more each year, and allows them to take advantage of contributions that may be tax-deductible (for Traditional IRAs).

Additionally, if one spouse retires ahead of the other, continuing to contribute to the retired spouse’s IRA offers an opportunity to take advantage of a few additional years of saving.

Spousal IRA contributions can also supplement other retirement savings contributions, such as those made to the working spouse’s workplace retirement plan and/or a Traditional IRA or Roth IRA. While the additional savings amounts may seem small (due to the annual contribution limit), they have the potential to accumulate over time. (See “Double up IRA contributions as a couple.”)

Spousal IRA contributions can fund a Traditional or Roth IRA, which means the decision should be based on you and your spouse’s retirement savings goals and the tax treatment of your existing resources. You may find it helpful to speak with a financial advisor about your retirement savings strategy before making this decision.

Contributions to Traditional IRAs may be tax-deductible, which could reduce your taxable income, while withdrawals in retirement are taxed as ordinary income. Roth IRAs, by contrast, are funded with after-tax dollars. Contributions can be withdrawn at any time without tax or penalty, but withdrawals of earnings are generally tax- and penalty-free as long as you have reached age 59½ and have held the account for at least five years.

The right choice for a given couple depends on multiple factors, including:

If you’re undecided about whether to make Roth or Traditional IRA contributions to your spousal IRA, the advantage often goes to the Roth IRA. In addition to the benefits listed in the previous paragraphs, adding a Roth IRA can improve the tax diversification of your retirement assets. This approach not only hedges against the risk of changes in tax laws or your personal circumstances, it also means you and your spouse have access to a mix of retirement savings with different tax treatments. Access to tax-free income from a Roth IRA can help you better manage your tax liability in retirement. Moreover, you can withdraw your contributions to—but not your earnings from—a Roth IRA tax- and penalty-free at any time.

Spousal IRA contributions can make a substantial difference in your household retirement savings, boosting savings and potentially improving your ability to reach your retirement goals. Take time to consider your options, then contribute to the IRA that best suits your household’s needs. This savings tool is often overlooked by couples as a way to continue to save when one spouse is earning little to no income. It can make a difference in supporting a household’s efforts to save for retirement while giving a nonworking spouse access to tax-advantaged retirement savings of their own.