What You Should Know About Spousal IRAs

Millions of spouses leave the workforce every year to care for children or elderly parents, a move that can jeopardize retirement security. But if one partner is working, a spousal individual retirement account (IRA) can help close the gap.
As long as one spouse has earned income and the couple files a joint tax return, the working spouse can contribute to an IRA under the nonworking spouse’s name. That makes a spousal IRA an ideal retirement-savings tool for spouses who plan to take a pause from their careers, says Madison Sharick, a certified financial planner in Pittsburgh.
In instances in which one spouse has no taxable income, the working spouse can contribute up to the annual contribution limit to a spousal IRA; in 2024, it’s $7,000, or $8,000 for those who are 50 or older. The total contribution to a spousal IRA can’t exceed the taxable income reported on the couple’s joint federal tax return. The account is owned by the nonworking spouse, regardless of who contributes to the account, and is his or hers to keep, even if the marriage ends in divorce.
Contributing to a spousal IRA could make a big difference in the owner’s retirement security. An analysis by T. Rowe Price found that an annual contribution of $7,000 would be worth more than $307,056 in 20 years, assuming an average annual return of 7 percent. The IRS adjusts IRA contribution limits every year to account for inflation, so your total could be larger if you contribute the maximum to the IRA.
In addition to boosting the nonworking spouse’s savings, contributions to a spousal IRA can reduce the couple’s tax bill by allowing them to save more for retirement on a tax-advantaged basis, says Jeff McDermott, a certified financial planner in Saint Johns, Fla. Like regular IRAs, spousal IRAs come in two flavors: traditional and Roth. Contributions to a traditional spousal IRA are pretax; withdrawals are taxed as ordinary income, and they’re subject to a 10 percent penalty if the owner withdraws funds before age 59½. Traditional IRAs are also subject to required minimum distributions, which currently kick in at age 73.
Contributions to a spousal Roth IRA are made with after-tax dollars, but withdrawals of earnings and contributions are tax-free as long as the IRA owner is 59½ or older and has owned the Roth for at least five years. And you don’t have to take RMDs from a Roth. However, as with regular Roth IRAs, spousal Roth IRAs are subject to income limits on contributions. For 2024, married couples with modified adjusted gross income (MAGI) of less than $230,000 can make the full contribution to a spousal Roth IRA. Couples with MAGI of at least $230,000 and less than $240,000 can make a reduced contribution, while couples with MAGI of $240,000 or more are ineligible to contribute to a Roth.
You can open a spousal IRA with a brokerage firm, just as you would with a regular IRA. You can allocate the funds to various investments based on your age and risk tolerance.