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 who 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 requirements for making spousal IRA contributions.
Eligibility for IRA Contributions
To make an IRA contribution for your spouse, 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.
Contribution Limit (for All IRAs)
For 2018, the contribution limit is $5,500 for most Americans ($6,500 for those age 50 and older). In 2019 the limit is $6,000, and for those 50 and over, $7,000. All the money must be earned income; you cannot contribute more to your spouse's (or your own) IRA than you earned for that year. The IRS provides information on the most recent IRA contribution limits.
You can contribute that amount to both IRAs, for a maximum of $11,000/$13,000 in 2018, depending on whether either or both of you qualify for the catch-up contribution. For 2019, the max is $12,000/$14,000.
Compensation Limit (for Roth IRAs)
There is no cap on the amount you may earn to be eligible to fund a traditional IRA. However, If you want to contribute to a Roth IRA for your spouse (or yourself), there are income limits.
For 2018, a married couple filing jointly may make up to $189,000 and be eligible to contribute the full amount for each of them to a Roth IRA ($5,500 per person; $6,500 for whomever is 50 or older). Those who earn from $189,000 to $198,999 can make a partial Roth contribution. At $199,000 or more, couples don't qualify to contribute to a Roth. For 2019, those figures are up to $193,000, $193,000-$202,999 and $203,000 or more.
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. 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 can deduct your spouse's traditional IRA contribution – but not the traditional IRA contributions made to your own traditional IRA – you may decide to fund a Roth IRA for yourself instead if you are eligible to do so.
"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®, Ward Aguilar Financial, Inc., 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, it provides another vehicle to save for retirement."
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. Similarly, any IRA you establish for yourself must be established in your name and tax identification number.
- 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, the deadline 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 current year unless you indicate on the check or accompanying documentation that the contribution should be made for the previous year.
- It is not required that you make a full contribution 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 – provided you meet the April 15 deadline for making the contributions.
The Bottom Line
Helping to fund your spouse's retirement nest egg can be as important as funding your own, as retirement assets may be shared during your retirement years. If 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. Also, be sure to consider eligibility should you decide to contribute to a Roth IRA. Most important, you and your spouse should discuss your plans with your financial consultant, who should be able to assist you with making the choices that are right for your family.