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What is a spousal individual retirement account (IRA)?

E-mail|Link Posted by Andrew Chan August 19, 2009 02:00 PM

A spousal IRA is a traditional IRA or Roth IRA that a working spouse can establish and make contributions to for his or her spouse. It is usually set up in situations where one spouse earns the majority of or all of a couple’s income. (For purposes of this discussion, I’ll refer to the spouse who has little or no taxable income as the “non-working spouse” even if he or she does have an income.) Keep in mind that a “spousal IRA” is not a special type of IRA. The term “spousal IRA” is just a description of the way contributions are made to a non-working spouse’s IRA.

In order to make contributions to a non-working spouse’s IRA, the working and non-working spouse needs to satisfy the following criteria:
• They need to be married as of the end of the tax year;
• They need to file a joint federal income tax return for the tax year in which the contribution is being made;
• The working spouse must have taxable compensation for the year in which the contribution is being made; and
• If the “non-working” spouse has taxable income, it must be less than the income earned by the “working” spouse.

For a Roth IRA, the couple also needs to have a Modified Adjusted Gross Income (MAGI) of less than $176,000 (in 2009) to be eligible to contribute to a Roth.

If you satisfy the criteria above, you may be able to contribute as much as $5,000 dollars (in 2009) to your non-working spouse’s IRA. If your non-working spouse is age 50 or older, the contribution can be as much as $6,000 dollars (in 2009). The actual amount that you can contribute to your non-working spouse’s IRA will depend on: (1) your joint MAGI; (2) whether or not the working spouse contributes to his or her own IRA; and (3) the age of the non-working spouse.

Tax Deductible Contributions
The determination of whether or not an IRA contribution is tax deductible is the same whether or not you contribute to your own IRA or you contribute to your non-working spouse’s IRA. In general, deductibility is based on the following factors: tax filing status, MAGI, the amount contributed, and participation in an employer sponsored retirement plan. Deductibility only applies to IRA contributions and not Roth IRA contributions. Roth IRA contributions are never deductible.

The IRS has prepared a couple of useful tables to help guide you through the process of determining how much of your IRA contribution is deductible (http://www.irs.gov/retirement/participant/article/0,,id=188232,00.html).

tags IRA, Spousal IRA

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About the contributors

Jill Boynton is co-founder of Cornerstone Financial Planning in Newington, N.H. Along with traditional financial planning services, Boynton provides analysis specifically for divorce.

Andrew Chan is the founder of Integrative Financial Advisors in Framingham. He provides comprehensive financial planning advice and investment management services. He has been an adviser for over 12 years and works with clients to integrate all aspects of their finances including investments, retirement, education funding, and tax planning.

Cheryl Costa is a managing director at AFW Wealth Advisors, which has offices in Natick and Purchase, N.Y. She advises clients on investing, education funding, and estate planning. She holds a master’s in business administration from Boston University.

Jamie Downey has been an accountant for more than 14 years. He's a partner at Downey & Co. in Braintree. Prior to joining the firm, he served as a manager in the audit department of accounting firm KPMG.