Marriage. It is one of the sacred and fulfilling of institutions that we have, but, it can also be a lot of work. When you get married there is so much to be done in the financial realm including setting up joint bank accounts, bringing together disparate accounting methods, doing your taxes together. Those things can definitely be a positive or negative depending upon your situation, past life history for the partners and so on, but in my opinion coming together in all things, including financial, can only be a positive in the long run.
Among the benefits of being married is the Spousal IRA, and the ability for a non-working spouse to contribute retirement funds to an IRA. Now that my wife is staying at home with our first son, it's something that we'll be looking into. There are however quite a few rules and restrictions when it comes to these Spousal IRA accounts, so you need to be cognizant of those rules when selecting the right account for your family.
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Spousal IRA Contribution Rules
When making contributions to your spouse's IRA, there are some criteria you need to meet.
- Working spouse earned taxable income for the tax year and can cover contributions.
- Married to your spouse at the end of the tax year.
- File a joint federal income tax return.
- Your taxable income must be less than that of the owner of the IRA.
Spousal IRA Contribution Limits
There are different rules on how much or if you can contribute to a Spousal and Traditional IRA, depending on who is working, how much income there is, and who is participating in a qualified retirement plan – so it is important to know the specifics depending on your situation. In general, however, a non-working spouse can contribute $5,000 for the 2010 tax year, $6,000 if they are 50 or older.
The working spouse may also contribute to an IRA as long as they meet the requirements. So for a given tax year a couple can contribute up to $10,000 in an IRA. Here are the contribution limits for the past few years.
| Year | Age 49 and Below | Age 50 and Above |
|---|---|---|
| 2002-2004 | $3,000 | $3,500 |
| 2005 | $4,000 | $4,500 |
| 2006-2007 | $4,000 | $5,000 |
| 2008 | $5,000 | $6,000 |
| 2009 | $5,000 | $6,000 |
| 2010 | $5,000 | $6,000 |
| 2011 | $5,000 | $6,000 |
Spousal IRA Phaseout Based On AGI
Spousal IRA contributions have phase outs for Traditional IRAs if you reach certain compensation limits. Once you reach the limit range your allowed contribution amount goes down and eventually phases out completely. For phaseout limits, see the table below.
| Married Filing Jointly Phase Out Limits | Non-Working Spouse Phase Out Limit | Working Spouse Phase Out Limit - Covered by Qualified Retirement Plan | Both Spouses Working Phase Out Limit - Both Covered By Qualified Retirement Plan | Both Spouses Working Phase Out Limit - Neither Covered By Qualified Retirement Plan |
|---|---|---|---|---|
| Traditional IRA | $167,000 – $177,000 | $89,000 – $109,000 | $89,000 – $109,000 | No AGI restrictions |
So as you can see it can get to be a bit complicated. But basically it comes down to this. If you are a non-working spouse and not covered by a qualified retirement plan, your AGI phase out limit will be $167,000 – $177,000. And if neither spouse is covered by a plan, no phaseouts apply and both can contribute $5000 to the IRA.
For a further discussion of confusing phase out and contribution limits, check out this post on Spousal IRAs
Conclusion
Even if one spouse in the marriage isn't working, it's important not to forget to contribute to an deductible IRA for them as well. Down the road you'll be glad you did.
What do you think of Spousal IRA contributions? Do you take advantage of them currently, or have you been considering them? Tell us your thoughts in the comments.
I am still working but well above the 70 and a half age limit which prohibits me from contributed to my own IRA account. However my wife has not yet reached that same IRA age threshold. My wife does not work so I have contributed to her IRA account several times in the past. I have a 2-part question: Even though I am above the 70 and a half threshold, can I continue to contribute to her IRA until she reaches that same age threshold? And secondly, will I be allowed to reduce my total taxable income by whatever amount I contribute to her IRA, even if my total income exceeds $150,000? Thank you in advance.