Spousal IRAs address the retirement needs of single income families. Spousal IRAs recognize the fact that even if only one spouse earns wages, the non-working spouse still contributes to the household by raising children, taking care of the family home and other domestic responsibilities. Congress created Spousal IRAs so that housewives and househusbands can have an individual retirement account of their own.
How Does it Work?
Generally speaking, the working spouse makes contributions to his or her spouse’s IRA account within the legal limit. Currently, the yearly limits are $5,000 for people under the age of 50 and $6,000 for people over 50. The non-working spouse can make contributions as well. Spousal IRA accounts can be either traditional IRAs or Roth IRAs and follow the same rules that apply to both types of accounts. In order to have a Spousal IRA, the couple must file a joint tax return every year. Because the Spousal IRA must be set up in the spouse’s name, there is no chance that he or she will lose the account if the couple gets divorced or the wage earning spouse passes away. Once a husband or wife contributes money to a Spousal IRA, the money becomes the property of the spouse regardless of where it came from.
Why Get a Spousal IRA?
A Spousal IRA guarantees retirement benefits for your spouse. If you plan to stay together for the rest of your lives, a Spousal IRA is also a good way to double your joint retirement savings. Additionally, the tax rules and laws governing spousal inheritance of an IRA that isn’t in his or her name can be complex. There is a possibility that your spouse might not be able to inherit your IRA, so a Spousal IRA helps provide security for your husband or wife.
Which Type of Spousal IRA is Best?
There are many differences between a traditional IRA and a Roth IRA. One significant difference is that traditional IRA contributions are made from pre-tax earnings and are often tax deductible. Roth IRA contributions are made from an employee’s net income and are not tax deductible; however, the owner can withdraw from the account at any time he or she wishes without any financial penalties. The difference between the two are substantial and if you are not sure which is right for you, you should consult with a professional financial adviser to figure out which choice is best for your personal situation.
Neglecting your spouse’s retirement needs isn’t fair if you expect him or her to give up his or her own career to be a homemaker. Spousal IRAs are not just a way to provide security for your spouse, they are also way to show that you care about your spouse’s long term needs and recognize his or her contribution to your family. Even if your spouse only takes a few years off work to take care of family needs, he or she shouldn’t lose the that time saving for retirement.
About the Author: Tony Smith is a full-time freelancer who knows the importance of thinking about retirement early. He enjoys writing about human resources and business and often recommends sites like Adecco USA temp staffing services to individuals looking for work.
What is a Spousal IRA? by Steve