What Is a Spousal IRA?

A spousal IRA is a strategy that allows a working spouse to contribute to an individual retirement account (IRA) that is in the name of a non-working spouse with no income or very little income. This is an exception to the provision that an individual must have earned income to contribute to an IRA. The working spouse's income, however, must equal or exceed the total IRA contributions made on behalf of both spouses.

Spousal IRAs are just regular Roth or traditional IRAs that are used by married couples. They are not joint accounts; each IRA is set up in the name of an individual spouse. For 2020 and 2021, the use of a spousal IRA strategy allows couples who are married filing jointly to contribute $12,000 to IRAs per year—or $14,000 if they are age 50 or older due to the catch-up contribution provision.

Key Takeaways

  • Spousal IRAs allow working spouses to contribute to an IRA for a non-working spouse.
  • Spousal IRAs are the same as Roth or traditional IRAs but are designed for married couples.
  • Couples must file joint returns to contribute to a spousal IRA.

How a Spousal IRA Works

The couple also must file a joint tax return (married filing jointly) to qualify for spousal IRA contributions. Spousal IRAs can be either traditional or Roth IRAs and are subject to the same annual contribution limits, income limits, and catch-up contribution provisions as traditional and Roth IRAs. While IRAs cannot be held jointly in both spouse's names, spouses can share their account distributions in retirement.

Spousal IRAs allow couples to accelerate their retirement savings. An added $6,000 per year over 30 years at a 5% rate of return can add up to well over $400,000 at retirement.

Spousal IRAs: How They Work

The IRS has extensive rules on how IRAs must be structured and specific guidelines on how spousal IRA strategies can be deployed. According to the IRS, the amount of your combined contributions cannot be more than the taxable compensation reported on your joint return. See the formula in IRS Publication 590-A. If neither spouse participated in a retirement plan at work, all of their contributions will be deductible.

For married couples filing jointly and for who the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $105,000 to $125,000 for 2021, up from $104,000 to $124,000 for 2020, according to the IRS.

For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is, the deduction is phased out if the couple’s income is between $198,000 and $208,000 for 2021, up from $196,000 and $206,000 for 2020.

Spousal IRA Contribution Limits and Deadlines

For 2020 and 2021, each half of a couple using a spousal IRA strategy can contribute $6,000 annually. Each person may contribute an additional $1,000 if they are age 50 or older. That amounts to total contributions of $12,000 to $14,000 for 2020 and 2021. Contributions must be made by the tax filing deadline for that tax year.

IRS-approved institutions including banks, brokerage companies, some credit unions, and federally insured savings and loan associations offer spousal IRAs. Investopedia's Best Brokers for IRAs allows you to compare brokers side-by-side to find the one that matches your investing needs.