Making Spousal IRA Contributions

 

Generally, individuals who are unemployed are not allowed to contribute to retirement accounts such as IRAs because they do not have eligible compensation. However, there is an exception for individuals with spouses that are employed and meet certain requirements. The employed spouse is allowed to make an IRA contribution on behalf of a non-working spouse or a spouse who has little income. These contributions are referred to as "spousal IRA contributions". Here we review the eligibility requirements for making spousal IRA contributions.
 
Eligibility Requirements
To make a spousal IRA contribution, you must meet the following requirements:

• You must be married.
• You must file a joint income-tax return.
• You must have compensation or earned income of at least the amount you contribute to your IRAs.

Age Limit
If you decide to fund a Traditional IRA for your spouse, he or she must be under age 70.5 for the year for which the contribution is being made. For example, if your spouse attained age 70.5 in 2008, you wouldn't have been permitted to make a contribution to his or her Traditional IRA for 2008. You would, however, have been able to make a spousal IRA contribution for tax year 2007, provided the contribution was made by April 17, 2008.

There are no age limits that apply to Roth IRA contributions. 

Compensation Limit
While there is no cap on the amount you may earn in order to fund a Traditional IRA, this is not so for a Roth IRA. If your compensation is more than $169,000, you are not allowed to contribute to a Roth IRA for yourself or your spouse. If your compensation is below $159,000, you may contribute up to the limit allowed for the year. Once your compensation reaches $159,000, your contribution limit is reduced and phases out until you reach a compensation of $169,000. When your compensation falls between $159,000 and $169,000, your tax professional will be able to help you determine the maximum amount that you are allowed to contribute to your and/or your spouse's Roth IRA.

Contribution Limit
You may contribute 100% of your compensation or the tax year's IRA contribution limit, whichever is less, to your IRA. Bear in mind that the contribution limit that applies to you also applies to your spouse. For example, for tax year 2008, which has a contribution limit of $5,000, you may contribute no more than $10,000 in total to both IRAs. If you are age 50 or older by the end of the year for which the contribution is being made, the limit is increased by the catch-up amount.

Table 1 summarizes the regular IRA contribution limits for tax years 2002 to 2009, and Table 2 summarizes the catch-up contribution limits. The numbers shown apply to both Roth and Traditional IRAs.

Regular IRA Participant Contribution Limit
Tax Year	Individual Contribution Limit	Combined Individual and Spousal IRA Contribution Limit
2002	$3,000	$6,000
2003	$3,000	$6,000
2004	$3,000	$6,000
2005	$4,000	$8,000
2006	$4,000	$8,000
2007	$4,000	$8,000
2008	$5,000	$10,000
2009	$5,000 + potential cost of living increase	$10,000 + potential cost of living increase

Figure 1

Catch-Up Contribution Limit
Tax Year	Individual Contribution Limit	Combined Individual and Spousal IRA Contribution Limit
2002	$500	$1,000
2003	$500	$1,000
2004	$500	$1,000
2005	$500	$1,000
2006	$1,000	$2,000
2007	$1,000	$2,000
2008	$1,000	$2,000
2009	$1,000	$2,000
2010	$1,000	$2,000

Figure 2

If you contribute to both Roth and Traditional IRAs, remember that your combined contribution may not exceed the limits stated above.

Continued...

Deductions
If you do not participate in an employer-sponsored plan, such as a 401(k), you will be able to deduct the full amount of your spousal IRA contribution (To read more, see Traditional IRA Deductibility Limits.) If you are covered by an employer-sponsored plan, your ability to deduct your spousal IRA contribution depends on your income and your tax filing status.

If you are able to deduct your spouse's Traditional IRA contribution but not the Traditional IRA contributions made to your Traditional IRA, you may decide to fund a Roth IRA for yourself instead (For further reading, see Roth Or Traditional IRAs, Which Is The Better Choice?)

IRAs Must Be Held Separately
Unlike your regular checking or savings account, your IRAs cannot be held jointly. The IRA you establish for your spouse must be in his or her name and tax identification number. Any IRA you establish for yourself, must be established in your name and tax identification number.

General Reminders

• IRA contributions must be made in cash (which includes checks). Securities, including mutual funds and stocks, may not be used to make an IRA participant contribution.
• Contributions for a tax year must be deposited or mailed to your IRA custodian by April 15 of the following year. Make sure you obtain a receipt if you mail your contributions, or send them by traceable mail. You may need to provide proof of the date of mailing should your contribution reach your IRA custodian/trustee after April 15. Note that for any year that the deadline falls on the weekend, then the deadline is extended to the next business day.
• Remember to indicate the tax year for which your contribution should be applied. IRA custodians/trustees will generally deposit your contribution for the current year unless you indicate on the check or accompanying documentation that the contribution should be made for the previous years.
• It is not required that your full contribution amount be made in one payment. Contributions may be made in small amounts until your goal or limit is reached.
• You may make a year's IRA contribution even after you have filed that year's income tax return, providing you meet the April 15 deadline for making the contributions.

Conclusion
Helping to fund your spouse’s retirement nest egg may be equally as important as funding your own, as retirement assets may be shared during your retirement years. Should you decide to contribute to your spouse’s IRA, be sure to consider deductibility, including whether either of your contributions can be deducted, and if not, whether a Roth IRA should be funded instead. In addition, be sure to consider eligibility should you decide to contribute to a Roth IRA. Most importantly, discuss your plans with your financial consultant, who should be able to assist you with making the choices that are right for you.

by Denise Appleby (Contact Author | Biography)

Denise Appleby is a retirement plans consultant, freelance writer and editor. Before starting her own business, Appleby Retirement Consulting, Denise worked for Pershing LLC for almost 10 years. While at Pershing, Denise rose to the rank of vice president, and held many positions including retirement plans product manager, manager of the retirement plans technical assistance group and retirement plans training manager. Appleby Retirement Consulting provides technical assistance to financial institutions and financial professionals; content for newsletters, websites and magazines; and technical editing services for books and other retirement plans material. Denise holds several retirement professional designations.