How to Save for Retirement When You Don’t Have an Income: Spousal IRAs

Many couples with only one income believe they can only contribute toward one IRA account; but if you are married and file a joint tax return, you can actually double your yearly retirement investment. Typically those without an income aren’t eligible to open an IRA because contributions can only be made up to the maximum earned income or $5,500, whichever comes first. If you earn less than $5,500 a year, you can only contribute up to the amount you’ve actually earned for that year. If you earn $0, you obviously wouldn’t be able to contribute anything. However, spousal IRAs make contributions possible without any income requirement.

How a spousal IRA works

A spousal IRA is a completely separate account belonging to the non-income earning spouse. It is not a joint account or connected to the original account in any way. Spousal IRAs are not under their own account type category, but are listed as a traditional or Roth—whichever you choose to open. The account holder will have all the same investment options that these accounts offer and have an annual contribution limit of $5,500 (or $6,500 if over 50). Unlike a regular IRA, you will contribute the working spouse’s income toward the account instead of your own income. If your spouse earns over $11,000/year, you will be able to make the maximum contribution to both accounts. Since the account is listed under your name only, you will have the power to name your own beneficiaries, and you will calculate distributions based on your own life expectancy.

Limits to a spousal IRA

Because a spousal IRA is the exact same as a traditional or Roth IRA, all of the same rules apply (besides the lack of income requirement).

  • You may only contribute cash to the account in the form of currency or checks.
  • All contributions must be made before the tax deadline and you must indicate for which year you would like the contribution to apply toward. The default is the current year, so if you need to make up contributions for the previous year, be sure to make a note for it.
  • Contributions can be spread out throughout the year or made all at once.
  • Distributions must start the year you turn 70 ½ for a traditional IRA, but you may start taking distributions once you reach 59 ½ without penalty. Roth IRAs don’t require yearly distributions by a certain age, but you must have the account for five years or turn 59 ½ before you can take your first distribution without penalty.
  • Traditional IRAs don’t have income limits for contributions, but Roth IRAs do. Roth IRAs grow tax free, but you won’t be able to deduct contributions on your taxes. Traditional IRAs grow tax deferred and deductions may be subject to income limits.

Whether you are a stay-at-home parent, have recently lost a job, or have another situation that prevents you from currently earning income, you can still invest in your retirement through spousal IRAs. Married couples who take advantage of this opportunity have the potential to double their retirement funds.

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