A primer on spousal IRAs

Whether you’re a stay-at-home parent or taking some time off work, saving for retirement shouldn’t go by the wayside. In many cases, individuals aren’t aware they’re able to save for retirement when they don’t have earned income. Contributing to an IRA or Roth IRA is a viable option, and a good way to keep that nest egg growing. For those who may not be familiar with this commonly overlooked option, we’ve put together a quick primer.

What is a spousal IRA?
A spousal IRA allows a non-working spouse to save for retirement. A common misconception is that opening an IRA requires earned income, and this myth could cost you. As long as the working spouse is employed, a spousal IRA allows the non-working spouse to put retirement assets in their name.

What taxes or penalties should I know about?
There are no taxes or penalties, and it’s very possible that you can deduct it depending on your income. There’s no penalty for contributing to an IRA for a non-working spouse.

What is the contribution limit for a spousal IRA?
For 2018, the contributions for traditional IRAs is $5,500 or taxable income for the year, whichever is less. Also, you can do an additional $1,000 catch-up for the non-working spouse, if you’re 50 or over, again assuming you have taxable income of at least that amount.

What should individuals know ahead of opening a spousal IRA?
If you don’t qualify for a tax-deductible contribution, the non-working spouse can open a Roth IRA and that money can grow completely tax-free until the time of withdrawal. However, there are income limits for contributing to a Roth IRA based on your filing status. Also, to contribute to a spousal IRA, you must file a joint return. You should consult your financial advisor or your tax advisor for more information on income and contribution limits.

One last thing to keep in mind — alimony next year will not be considered earned income, unless you’re already receiving, then you’ll be grandfathered in. Starting in 2019, when alimony isn’t considered taxable income, individuals won’t be able to contribute to an IRA if a spouse isn’t working.