An individual retirement account (IRA) must be established and maintained in only one individual’s name. This differentiates IRAs from other retirement vehicles that may be jointly held by two parties.
- Individual retirement accounts (IRAs) must only be in solely one person's name, unlike other retirement vehicles, which often can be held jointly.
- Interestingly, IRA owners can name their spouses as the beneficiaries of their retirement accounts.
- Even if only one spouse earns an income, both spouses can have separate IRAs in each of their names, by establishing a spousal IRA.
Naming a Spouse as Beneficiary
Although IRA owners may not share their accounts with spouses, they may, in fact, designate their spouses or other individuals as their IRAs' beneficiaries. Certain states require the spouse to provide written consent if the IRA owner wishes to designate a non-spouse as the beneficiary. For this reason, it is vitally important to periodically review beneficiary designations to determine if any updates or changes are required.
Creating a Spousal IRA
Spouses can create IRAs in their own respective names, even if only one of the spouses in question generates an income. They may accomplish this by relying on a vehicle known as a spousal IRA, which lets a working spouse contribute funds to an IRA in the name of the non-working spouse. Spousal IRAs effectively offer married couples a legal method of circumventing income requirements.
To qualify for spousal IRAs, couples must satisfy the following mandates:
- They must file a joint income tax return for the year in which the spousal IRA is created.
- They must demonstrate an earned income or other eligible compensation, that either equals or exceeds the total amount of the collective contributions made to the two IRAs
The non-earning spouse must also be under age 72 if the spousal IRA is a traditional IRA. This number represents a jump from the previous age limit of 70½. The increased number emerged as part of legislative changes brought on by the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE), which has prompted sweeping changes across the retirement planning landscape. It should be noted that there is no age limit associated with Roth IRAs.
As long as they have sufficient earned income, a couple can fund both of their IRAs to the allowable maximums for that year. In 2020, for example, the maximum is $6,000 for anyone under the age of 50 and $7,000 for those over 50 years of age. Consequently, depending on their ages, a couple may contribute as much as $14,000 to their two IRAs, effectively doubling their retirement savings for the year.
Spouses may fund both of their IRAs to the maximum collective allowable capacity, if at least one individual earned that amount of income, or more, for the year.
Spousal IRAs demand that participants maintain a keen knowledge of the rules pertaining to tax deductions for traditional IRA contributions, as well as income limits for Roth IRA eligibility. This will help individuals gauge the tax impact of the decisions that factor into their broad retirement planning goals.
Theodore E. Saade, CFP®, AIF®, CMFC
Signature Estate & Investment Advisors LLC, Los Angeles, CA
An IRA cannot be held jointly by spouses. It can only be held in one individual’s name.
But one workaround, depending on what you’re trying to accomplish, would be to appoint the account-holder’s spouse their power of attorney. When triggered, a limited power of attorney would authorize the spouse to make trades within the account; a full power of attorney would allow the spouse to make withdrawals and transfers from the account as well. You should check with the brokerage firm that is the custodian of your IRA to see if it can accommodate a power of attorneyship; it may require you to fill out a proprietary authorization form.