Laura reviews the rules for using a spousal IRA, including who’s eligible to have one and the money-saving tax benefits you receive.
Laura reviews the rules for using a spousal IRA, including who’s eligible to have one and the money-saving tax benefits you receive.
Money Girl is hosted by Laura Adams. A transcript is available at Simplecast.
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Retirement accounts are terrific ways to save for retirement. Still, they're typically only available when you have earned income, like a salary or hourly wages, or access to a workplace retirement plan, like a 401(k). However, there's an important exception known as a spousal IRA (individual retirement account) for some without any or enough income to fully maximize an IRA.
This post will review the benefits of a spousal IRA, who qualifies for one, and how to use it to boost your retirement nest egg.
Welcome back! I appreciate you joining me for Money Girl episode 896! I'm Laura Adams, an award-winning author, on-camera spokesperson, female money speaker, founder of The Money Stack, a Substack newsletter, and host of Money Girl with over 43 million downloads.
If you enjoy the free content we love creating for you, please take a moment to rate and review the show in your podcast app! If you have a question about money, leave it on our voicemail at 302-364-0308. You can also visit LauraDAdams.com to email me and learn more about my books, courses, and the free Money Stack newsletter.
What is a spousal IRA?
A spousal IRA isn't a different type of IRA but a rule that allows a married breadwinner to fully fund their spouse's IRA even if the spouse has little or no income. It's a workaround that enables a working spouse to contribute to an IRA on behalf of their spouse.
But the rule only applies when you're married and file taxes jointly. Note that an IRA can never be owned jointly, even if you're married. So, a spousal IRA is in the name of a non-qualifying spouse and funded using household earned income.
RELATED: Can you contribute to a 401(k) and an IRA in the same year?
Who qualifies for an IRA?
To understand the benefits of a spousal IRA, let's review the general benefits of IRAs and who qualifies for them.
With a traditional IRA, contributions are pre-tax, reducing your taxable income in the same year. You only pay income tax on contributions or investment earnings once you take withdrawals in retirement. The IRS requires you to take taxable distributions starting at age 73.
With a Roth IRA, contributions are after-tax, but you pay no additional income tax on investment earnings when you withdraw in retirement. There are no required minimum distributions from Roth accounts.
You can make IRA contributions regardless of your age. However, you generally must have taxable compensation, like a salary, wages, commissions, tips, bonuses, or net income from self-employment. Other types of income, including alimony, investment earnings, and payments from a pension or annuity, don't count as compensation when qualifying for IRA contributions.
LISTEN ALSO: How to use a mega backdoor Roth conversion
How much can you contribute to an IRA?
For 2025, you can contribute an amount to a traditional or Roth IRA equal to your qualified compensation, up to a maximum of $7,000 or $8,000 if you're over 50. However, there is an income limit to qualify for a Roth IRA that I'll review in a moment.
For example, if you're a student or senior who works part-time, earning $5,000, you could contribute $5,000 to an IRA. But if you're 40 and earn $100,000, you can contribute at most $7,000.
Withdrawals of untaxed funds from a retirement account before age 59.5 are subject to income tax plus an additional 10% early withdrawal penalty. Therefore, you shouldn't put money in a retirement account that you might need to spend. It's best to avoid tapping a retirement account early so it can reach its full growth potential.
READ ALSO: 4 ways to fund a Roth no matter your income
What are the Roth IRA income limits?
The Roth IRA is unique because it's the only retirement account with an annual income limit. For 2025, single taxpayers with modified adjusted gross income (MAGI) below $150,000 qualify to make a full contribution. And if you're married and file joint taxes, your household MAGI can't exceed $236,000.
Another important rule is that when your spouse participates in a workplace retirement plan, like a 401(k) or 403(b), your ability to deduct traditional IRA contributions may be reduced or eliminated based on their income. But there's no conflict with maxing out a workplace retirement plan and a Roth IRA in the same year (when you qualify to make Roth IRA contributions).
LISTEN ALSO: Too rich for a Roth? 3 legal ways to have one
How does a spousal IRA work?
Here's an example of how a married couple might benefit from a spousal IRA. Let's say John and Lisa are under 50 and decide to start a family. If they file a joint tax return and one wants to be a stay-at-home parent, each can fully fund a traditional or Roth IRA (if their income isn't too high).
They could put $7,000 in John's IRA and $7,000 in Lisa's IRA. The spousal IRA contribution can go to an existing or new IRA. However, if one spouse were over 50, the couple could put $15,000 ($7,000 + $8,000) in their IRAs. Or, if both were over 50, they could contribute up to $16,000 ($8,000 + $8,000).
I received a great question from Barbara, who said, "My husband and I each contribute to Roth IRAs. However, in 2025, I won't earn enough to contribute the maximum. Can my husband set up a spousal IRA for me to make up the difference?"
Yes, if you're married and file taxes jointly, each spouse can fully fund an IRA, using the spousal IRA strategy. Of course, your household income must be under the annual income limit to qualify for Roth IRAs. If not, you could both fund traditional IRAs instead.
So, don't miss the opportunity to max out an IRA if you're married and not working or earning less than the annual contribution limit for your age.
LISTEN ALSO: Roth IRA rules for minors–how to make kids millionaires
How to open a spousal IRA
Regularly investing in a tax-advantaged retirement account for long-term growth gives you the best opportunity to reach your retirement goals. For IRAs, you have until your tax filing deadline to make contributions for the previous tax year. So, if you want to max out an IRA for 2024, you have until April 15, 2025.
As I mentioned, if you already have an IRA, you can use it for spousal IRA contributions, if you're eligible. You can also open a new IRA with any financial institution or investing firm using these four steps:
1. Choose a brokerage firm: You might choose the same bank or provider for any other investments you own to centralize your accounts. Or you can choose a new financial institution–the choice is yours. Be sure to compare their fees and investments.
2. Submit required documentation: You must share personal identifying information, such as your Social Security number and address.
3. Fund your IRA: Once it's open, you can connect it to a bank account and set up a one-time transfer or recurring deposits. Be sure your contributions won't exceed the annual limits.
4. Choose your investments: Funds you contribute to an IRA can't grow unless you allocate them to one or more investments. I always recommend selecting funds based on risk tolerance and goals, such as highly diversified and low-cost index funds or exchange-traded funds (ETFs).
That's all for now. I'll talk to you soon. Until then, here's to living a richer life!
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