To contribute to an Individual Retirement Account (IRA), you need to have earned income. If you have a non-working spouse, they can also open an IRA and contribute to it as long as you have earned income. This is known as a “spousal IRA” and is a great way for couples to save for the future.
Who is eligible to contribute to a spousal IRA?
To contribute to an IRA, you must have earned income that is equal to or greater than the amount you contribute. For couples, as long as one spouse has earned income and files a joint federal tax return, the non-working spouse can open either a traditional IRA or a Roth IRA and contribute to it. At the same time, the working spouse can contribute to their own IRA. Each spouse can contribute to the annual limit.
Decide whether the spousal IRA should be traditional or Roth
While you can make a contribution to a spousal IRA in either a traditional IRA or a Roth IRA, your income may help you decide which type of account you prefer.
There is no income limit for contributing to a traditional IRA. This makes it a good option for both high and low earners. The same is not true for a Roth IRA. For the year 2022, you can only make a contribution to a spousal Roth IRA if your modified adjusted gross income (MAGI) is less than $214,000, compared to $208,000 in 2021.
Many people who can put money into a Roth IRA choose to do so. Contributions to a Roth are made with after-tax dollars and grow tax-free. A Roth may give you a better outcome in retirement if you are paying lower taxes now than you will pay in retirement.
Consider the possibility of deducting your traditional IRA
You may be able to deduct your spousal IRA contributions from taxes. Your income may be too high for a Roth. In this case, you can add any amount you want to a traditional IRA and deduct your contributions if you and your spouse meet the income criteria.
Either you or your spouse may have an employer-sponsored retirement plan like a 401(k). Your income level will determine how much you can deduct from taxes. If neither of you has a company retirement plan, you can fully deduct traditional IRA contributions. This also includes adding funds to your spouse’s traditional IRA.
You can deduct the money you put in your IRA if neither you nor your spouse has a workplace retirement plan. If you have a workplace plan, it may limit or eliminate your deduction.
If your income is too high, your IRA deduction may be limited. In 2022, if you are married and filing jointly and have a workplace plan, you can deduct the full amount of your IRA contribution if your MAGI is $105,000 or less, compared to $104,000 in 2021.
Even if your income prevents you from deducting your IRA funds, you can still make a non-deductible IRA contribution. This can lead to an opportunity to use what is called a “backdoor” Roth IRA. “Backdoor” is a term referring to converting a traditional IRA to a Roth.
Non-deductible IRAs grow, defer taxes, and protect your money from creditors (though state laws vary regarding creditor protection for IRAs).
Age limits for spousal IRAs
Before 2020, you could not add money to a traditional IRA after reaching age 70 and a half, but you could still make Roth IRA contributions regardless of your age. For tax years 2021 and beyond, there is no age limit for making contributions to either a traditional or Roth IRA.
It remains
Required minimum distribution (RMD) rules are the same for a spousal IRA. Starting in the year you turn 72, you must take RMDs. With the removal of the age limit for contributions, you can make your withdrawals and continue to add money to your IRA if you have earned income.
This makes sense, as it allows you to maintain a higher balance in your account while you or your spouse are withdrawing.
Source: https://www.thebalancemoney.com/yes-you-can-make-a-spousal-ira-contribution-here-s-how-2388702
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