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Spousal IRA contributions

Posted by Andrew Chan  April 9, 2010 03:30 PM

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What is a Spousal IRA and what are the rules around making contributions to it?

A spousal IRA is not a special type of IRA account. Rather, it is a term used to describe how a person can make an IRA contribution to their spouse's IRA account even if that spouse has little or no taxable income. If you and your spouse meet the conditions outlined below, you are allowed to contribute to his or her traditional or Roth IRA account.

In order to make a "spousal IRA" contribution you must satisfy all of the following criteria for the year in which you are making the IRA contribution:

- You must be married to your spouse at the end of the tax year;
- You must file a joint federal income tax return for the tax year;
- You must have taxable compensation for the tax year; and
- Your taxable compensation (for the tax year) must exceed your spouse's taxable compensation for that year.

If you and your spouse satisfy the criteria noted above and your spouse is younger that age 70.5, you can contribute to your spouse's traditional IRA. In addition, some or all of those contributions may be tax deductible. If your spouse is over the age 70.5 you cannot contribute to a traditional IRA for your spouse because contributions to traditional IRAs are not allowed after the account owner reaches age 70.5.

If you and your spouse meet the "spousal IRA" criteria above as well as the criteria to contribute to a Roth IRA, you can make a non-deductible contribution to your spouse's Roth IRA.

The amount that you are allowed to contribute for your spouse is based on your tax filing status, and the taxable compensation each of you receive. For the 2009 tax year, if you and your spouse file a joint tax return and your taxable compensation is higher than that of your spouse's, the contribution to your spouse's IRA is limited to the lesser of the following two amounts:

1) $5,000 ($6,000 if your spouse is age 50 or older), or
2) The total compensation included in the gross income of both you and your spouse for the year, reduced by your spouse's IRA contribution for the year to a traditional IRA AND any contributions for the year to a Roth IRA on behalf of your spouse.

Therefore the total combined contributions that can be made for the year to your IRA and your spouse's IRA can be as much as $10,000 ($11,000 if only one of you is age 50 or older or $12,000 if both of you are age 50 or older).

Here's an example from IRS Publication 590:
Kristin, a full-time student with no taxable compensation, marries Carl during the year. Neither was age 50 by the end of 2009. For the year, Carl has taxable compensation of $30,000. He plans to contribute (and deduct) $5,000 to a traditional IRA. If he and Kristin file a joint return, each can contribute $5,000 to a traditional IRA. This is because Kristin, who has no compensation, can add Carl's compensation, reduced by the amount of his IRA contribution, ($30,000 - $5,000 = $25,000) to her own compensation (-0-) to figure her maximum contribution to a traditional IRA. In her case, $5,000 is her contribution limit, because $5,000 is less than $25,000 (her compensation for purposes of figuring her contribution limit).

For more information about a spousal IRA review IRS Publication 590 at http://www.irs.gov/publications/p590/ch01.html#en_US_publink1000230412
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D. Abraham Ringer is a CERTIFIED FINANCIAL PLANNER practitioner and a Financial Adviser with Morgan Stanley Global Wealth Management in Boston. He is registered in MA, NH, NY and several other states to which his articles are directed. For more information please visit www.morganstanleyfa.com/ringer
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