Making spousal individual retirement account (IRA) contributions is an important way to build up a married couple's retirement nest egg if only one spouse is employed. Individuals without income from jobs generally aren't eligible to contribute to tax-advantaged retirement accounts, such as IRAs, because they don't have "eligible" compensation on which to base such contributions. However, there is an exception for married, nonworking individuals whose spouses are employed, as long as they both meet certain requirements.
If the requirements are met, the working spouse can make an IRA contribution on behalf of a nonworking spouse—or a spouse who has little income—using the income of the employed spouse to meet the income requirement. These are known as spousal IRA contributions.
- If one spouse has eligible compensation, that spouse can make IRA contributions for an IRA for the nonworking spouse.
- Traditional and Roth IRAs have the same contribution limits but different eligibility requirements.
- Each spouse's IRAs must be held separately. IRAs cannot be held jointly.
Eligibility for Spousal IRA Contributions
If you are the working spouse and you want to make an IRA contribution for your nonworking spouse, you must:
- Have eligible compensation of at least the total spousal IRA contribution, plus your own IRA contribution—if any. For IRA contribution purposes, eligible compensation includes wages, salaries, tips, commissions, nontaxable combat pay, and income from self-employment.
- File a joint income-tax return with your spouse.
Age limits do not apply to regular Roth IRA contributions.
For traditional IRA contributions made for 2019 and earlier, the spouse has to be under age 70½ as of the end of the year for which the contribution is made. This age limit does not apply to contributions made for 2020 and after, as the age limit has been removed under the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019.
Contribution Limits for Traditional and Roth IRAs
For 2019 and 2020, the individual contribution limit is the lesser of the following two:
- $6,000 a year for individuals under age 50 as of the end of the year and $7,000 for anyone 50 or older
- 100% of eligible compensation
You may contribute those amounts to each of your and your spouse’s IRAs, for up to a maximum of $12,000—plus the $1,000 catch-up contribution for whichever spouse is eligible (age 50 or over).
Compensation Limits: Just for Roth IRAs
There is no income cap for traditional IRA contributions. However, if you want to contribute to a Roth IRA for your spouse (or yourself), there are income limits.
For 2020, a married couple filing jointly with a modified adjusted gross income (MAGI) of up to $196,000 ($193,000 in 2019) is eligible to contribute the full amount to each of their Roth IRAs. Couples with incomes between $196,000 and $206,000 ($193,000 to $203,000 for 2019) can make partial Roth contributions. Once their income exceeds $206,000 ($203,000 for 2019), they no longer qualify for Roth IRAs.
Tax Deductions: Rules for Traditional IRAs
If neither spouse participates in an employer-sponsored plan, such as a 401(k), you will be able to deduct the full amount of both your own contribution and your spousal contribution. If the working spouse is covered by an employer-sponsored plan, their ability to deduct any, some, or all of their traditional IRA contributions will depend on their modified adjusted gross income and tax filing status. These rules are explained in IRS Publication 590-A, which is updated annually.
"One of the major benefits we see, and the biggest reason I see for contributing to a spousal IRA, is the tax benefit," says Bryan Ward, CFP®, CIMA®, with ProCore Advisors in Newport Beach, Calif. "Many couples we work with are in higher tax brackets and are looking for additional ways to lower their taxes. In addition to lowering the couple’s taxable income [if eligible], it provides another vehicle to save for retirement."
Unlike a regular checking or savings account, for example, IRAs cannot be held as joint accounts. Instead, each spouse's IRA must be held under that spouse's name and tax identification number.
In addition to the spousal IRA rules addressed above, there are other rules that apply to IRAs. These include the following:
- 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 your tax filing due date—generally April 15. Be sure to 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, it is extended to the next business day.
- Remember to indicate the tax year to which your contribution should be applied. IRA custodians/trustees will generally deposit your contribution for the year they receive it unless you indicate on the check or accompanying documentation that the contribution is for the previous year.
- You don't have to make your full contribution in one payment. Instead, you can make partial contributions throughout the year, as long as they all meet the April 15 deadline.
You can make your IRA contribution even after you have filed that year's income tax return, providing you meet the April 15 deadline.