With tax season in full swing, many married couples are looking for last-minute ways to maximize their retirement savings and tax breaks. And if one spouse is not working, they might be missing out on putting retirement assets in their name—not to mention reducing the tax-deferred growth possibilities as a couple.
One strategy that remains available in 2024: Making spousal IRA contributions. This can benefit couples where one spouse earns significantly less than the other, or even has no income at all. Here's how it works.
How spousal IRA contributions can double your retirement tax breaks
The IRA contribution limits for 2023 are $6,500 for those under age 50, and $7,500 for those age 50 or older. You can make 2023 IRA contributions until the unextended federal tax deadline (for income earned in 2023). Generally, you can only contribute up to these limits for your own IRA, meaning you must have an income that will allow you to do so. And as always, you can and should max out these limits, if possible. However, with a spousal IRA, your spouse can also contribute up to the limit in an IRA under your name.
That effectively doubles the amount your household can sock away in IRAs (pre-tax or Roth) each year. The only requirement is that the spouse who owns the IRA must have enough earned income to cover both contributions.
For example, let's say Alex earns $100,000 per year and her husband Kevin is a stay-at-home dad with no income. Alex can contribute $6,500 to her own IRA. She can also contribute $6,500 to an IRA that is under Kevin's name. That's $13,000 total that the household can now save in IRAs, rather than just Alex's $6,500 limit.
How spousal IRAs work
A spousal IRA isn’t actually a separate type of IRA account—rather, it’s just a traditional IRA or Roth IRA set up in the name of a spouse who has little to no income. This may include those who are caregivers for children or other family members, workers who have returned to school, or people who have left the workforce for another reason.
To be eligible for a spousal IRA, you have to meet a few requirements:
You must file taxes as “married filing jointly.”
The earning/contributing spouse must make enough to cover the contributions to both their own IRA and the spousal account.
There are income-based contribution limits for Roth IRAs and tax deduction limits for traditional IRAs based on your tax filing status. These may affect which type of account you select.
One key to a spousal IRA is that ownership stays with the person named on the account, no matter which spouse is contributing the funds. This also means that an existing IRA—funded while the owner of the account was in the workforce—can function as a spousal IRA if that person is no longer earning income and their partner simply contributes to the account on their behalf.
The bottom line
Eligible couples can use a spousal IRA to double their contributions to traditional individual retirement accounts (IRAs) even if only one partner has an income, and deduct a total of $13,000 (rather than $6,500 for the individual income earner) for 2023, as long as they do so by April 15. So there is still time for married couples to make spousal IRA contributions and double their tax-advantaged retirement savings—just be sure to specify which spouse the contribution is for when sending funds to your IRA provider.
With a little planning, this spousal IRA strategy can significantly boost many households' retirement funds. And you can get an immediate tax deduction on your taxes if you make the contributions prior to tax day, so don't leave this tax break on the table.