Spousal IRAs: A Tax-Savvy Strategy for Boosting Retirement Savings

April 7, 2025

In the realm of retirement planning, certain tax breaks often fly under the radar, and the spousal Individual Retirement Account (IRA) is a prime example. Designed to allow a working spouse to contribute to an IRA on behalf of a non-working or low-income spouse, spousal IRAs can effectively double a couple’s retirement contributions, enhancing their financial security. Understanding the mechanics and benefits of spousal IRAs is crucial for couples aiming to optimize their retirement strategies.

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Decoding the Spousal IRA

A spousal IRA isn't a distinct type of account but rather a strategic use of existing traditional or Roth IRAs. It permits a working spouse to contribute to an IRA in the name of a non-working or low-income spouse, circumventing the usual requirement that an individual must have earned income to contribute to an IRA. This approach allows both spouses to benefit from tax-advantaged retirement accounts, even if one has little or no income.

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Contribution Limits and Eligibility

For 2025, the IRS has set the annual contribution limit for IRAs at $7,000 per individual. Individuals aged 50 and over can make an additional catch-up contribution of $1,000, bringing their total to $8,000. This means that a couple could potentially contribute up to $14,000—or $16,000 if both are over 50—into their IRAs annually. To be eligible for a spousal IRA, the couple must be married and file a joint tax return. The working spouse must have earned income at least equal to the total contributions made to both IRAs. It's important to note that contributions cannot exceed the working spouse's earned income.

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Traditional vs. Roth Spousal IRAs

Spousal IRAs can be established as either traditional or Roth IRAs, each with distinct tax implications:

Traditional IRA: Contributions may be tax-deductible, reducing taxable income in the contribution year. However, withdrawals during retirement are taxed as ordinary income.
Roth IRA: Contributions are made with after-tax dollars and are not deductible, but qualified withdrawals during retirement are tax-free.

Eligibility for Roth IRA contributions is subject to income limits. For 2025, married couples filing jointly must have a modified adjusted gross income (MAGI) below $236,000 to contribute the full amount to a Roth IRA. Contributions phase out at higher income levels.

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Strategic Benefits of Spousal IRAs

Incorporating spousal IRAs into a retirement plan offers several advantages:

Increased Retirement Savings: By enabling contributions on behalf of a non-working spouse, couples can effectively double their IRA contributions, accelerating their retirement savings.
Tax Diversification: Utilizing both traditional and Roth IRAs allows couples to diversify their tax liabilities in retirement, providing flexibility in managing taxable income.
Empowering the Non-Working Spouse: Spousal IRAs provide the non-working spouse with their own retirement account, fostering financial independence and security.

Maximizing the Potential of Spousal IRAs

To fully leverage the benefits of spousal IRAs, consider the following strategies:

Assess Income Levels: Ensure that the working spouse's earned income is sufficient to cover the desired contributions to both IRAs.
Choose the Appropriate IRA Type: Evaluate current and anticipated future tax situations to decide between traditional and Roth IRAs.
Stay Informed on Contribution Limits: Regularly review IRS updates on contribution limits and income thresholds to optimize contributions and maintain compliance.
Consult a Financial Advisor: Seek professional guidance to tailor retirement strategies to your specific financial situation and goals.

Conclusion

Spousal IRAs present a valuable opportunity for married couples to enhance their retirement savings and achieve greater financial security. By understanding the eligibility requirements, contribution limits, and strategic benefits, couples can make informed decisions that align with their long-term financial objectives. Incorporating spousal IRAs into a comprehensive retirement plan can be a prudent step toward a comfortable and secure retirement.

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Sources

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Dan Nicholson is the author of “Rigging the Game: How to Achieve Financial Certainty, Navigate Risk and Make Money on Your Own Terms,” deemed a best-seller by USA Today and The Wall Street Journal. In addition to founding the award-winning accounting and financial consulting firm Nth Degree CPAs, Dan has created and run multiple small businesses, including Certainty U and the Certified Certainty Advisor program.

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