Married couples can fund two accounts, even if just one spouse earns income.
By JEAN FOLGER, updated March 18, 2023
Reviewed by DAVID KINDNESS
Fact checked by SUZANNE KVILHAUG
What Is a Spousal Roth IRA?
Typically, individuals need to earn income to contribute to a traditional individual retirement account (IRA) or a Roth IRA. However, if you’re married, you can use a spousal Roth IRA to boost your retirement savings potential—even if only one spouse works for pay.1
An IRA is an excellent tool for retirement savings. These accounts were introduced in the mid-1970s as a way to help workers save for retirement and lower their taxable income.2 It’s no surprise, then, that you must have income from a job to contribute to—and enjoy the tax benefit—of an IRA. According to Internal Revenue Service (IRS) rules, you need to have “taxable compensation” to contribute to a traditional or a Roth IRA.3
Despite that, there’s still a way for spouses to have their own IRAs, even if they don’t work for pay. One of the primary ways, discussed below, is the spousal IRA.
- A spousal IRA is a type of retirement savings that allows a working spouse to contribute to an individual retirement account (IRA) in the name of a nonworking spouse.1
- Usually, an individual must have earned income, but the spousal IRA is an exception, allowing a spouse with earned income to contribute on behalf of a spouse who doesn’t work for pay.1
- A working spouse can contribute to both IRAs, provided that they have enough earned income to cover both contributions.1
- Other than how they are funded, spousal IRA often has the same rules as “normal” IRAs.
- The spouse whose name is on the IRA legally owns the funds in the account even if they were not the person who funded the account. The spousal exception simply defines how contributions can be made.
Understanding a Spousal IRA
A spousal IRA is a type of retirement savings strategy that allows a working spouse to contribute to an IRA in the name of a nonworking spouse. Typically, an individual must have earned income to contribute to an IRA, but the spousal IRA is an exception since the nonworking spouse can have little to no income.1
Contributing to a spousal IRA can provide important retirement savings for non-working spouses. These non-working spouses may not have access to a retirement plan through their own employer (especially if they do not have an employer). Therefore, the intention behind spousal IRAs is to still provide retirement saving opportunities for those who would otherwise not have opportunities.
Additionally, contributions to a traditional IRA may be tax-deductible, while contributions to a Roth IRA are made with after-tax dollars but can provide tax-free withdrawals in retirement.3 Therefore, a spousal IRA (whether traditional or Roth) provide taxpayers with long-term tax benefits that impact current or future taxable income.
What Counts as Taxable Compensation?
There are two ways to get taxable compensation: Work for someone who pays you, or own a business (or farm). Taxable compensation includes the following:
- Wages and salaries
- Tips and bonuses
- Taxable alimony and separate maintenance
- Self-employment income
- Nontaxable combat pay4
The following types of income don’t count as taxable compensation:
- Earnings and profits from property
- Interest and dividends from investments
- Pension or annuity income
- Deferred compensation
- Income from certain partnerships
- Any amounts that you exclude from income4
Your earned income must match or exceed your IRA contribution. For 2022, you can contribute up to $6,000 ($6,500 in 2023), or $7,000 if you’re age 50 or older ($7,500 in 2023). So, to make the full contribution, you need at least the amounts above. If you make less, you can contribute up to the amount that you earned without the spousal IRA exception.51
If you contribute more than you’re allowed to, you’ll owe a 6% penalty each year until you fix the mistake.1
Spousal IRA Exception
You can contribute to a spousal IRA on behalf of a spouse who doesn’t have earned income. To do so, you must have enough earned income to cover both contributions. To fully contribute to both IRAs in 2022, your earned income would have to be at least $12,000, or $14,000 if you’re both age 50 or older (rising to $13,000 in 2023, or $15,000 if you’re both age 50 or older).51
Keep in mind that IRAs are individual accounts (thus the individual in IRA). As such, a spousal IRA is not a joint account. Rather, you each have your own IRA—but just one spouse funds them both.1 Regardless of who contributes to the spousal IRA, the IRA belongs to the individual whose name is on the account.
You must be married and file jointly to open a spousal IRA.6
Benefits of a Spousal IRA
A spousal IRA is an excellent way for a spouse who doesn’t work for pay to save for retirement. Without the spousal IRA exception, spouses with no earned income could have trouble finding a tax-advantaged way to save for retirement.
If one spouse has already maxed out their own IRA contributions, it can be a great opportunity for couples to enhance their tax-advantaged retirement planning.
Your spouse can name you as the beneficiary of the spousal IRA. But once you start contributing to the account, the money is your spouse’s. This becomes important if you separate or divorce in the future.7
A spousal IRA remains intact even if the spouse without earned income starts to receive pay for work. In this case, they can still contribute to the IRA, according to regular IRA rules.
Is a Spousal IRA a Traditional or Roth IRA?
A spousal IRA is an ordinary IRA set up in a spouse’s name. You can set it up as either a traditional or a Roth IRA.6 The biggest difference between the two IRAs is when you get the tax break. With a traditional IRA, you deduct your contributions now and pay taxes later when you take distributions.3
With Roth IRAs, however, there’s no up-front tax break. But your contributions and earnings grow tax free, and qualified distributions are also tax free. There are other differences as well. Below is a quick rundown.3
Roth and Traditional IRA: Key Differences
2023 Contribution Limits
2023: $6,500 or $7,500 if you’re age 50 or older
2023: $6,500 or $7,500 if you’re age 50 or older
2023 Income Limits
High earners may not be able to make contributions
High earners may not be able to deduct contributions
No tax break for contributions; withdrawals are tax free in retirement
Tax deduction for contributions; withdrawals taxed as ordinary income
Required Minimum Distributions (RMDs)
No RMDs during the account holder’s lifetime; beneficiaries can stretch distributions over many years
Distributions must begin at age 73 starting in 2023. Beneficiaries pay taxes on inherited IRAs
In general, a Roth IRA is a better choice if you expect to be in a higher tax bracket in retirement than you’re in now. If you do, it’s better to pay your taxes now, at the lower rate, and enjoy tax-free withdrawals later.
They’re also a good idea if you don’t think that you’ll need to take money out of your IRA. There are no required minimum distributions during your lifetime, so you can leave the entire account to your beneficiaries.3
Spousal IRAs and Divorce
The treatment of spousal IRAs during a divorce can vary depending on the laws of the state where the divorce is happening. Treatment of spousal IRAs may also be subject to the specific terms of the divorce settlement.
In general, spousal IRAs are considered to be marital property and may be subject to division during a divorce. Even though IRAs belong to each individual when the couple is together, the value of the spousal IRA may be divided between the spouses as part of the property settlement agreement. Again, this may be subject to specific criteria for each divorce.8
If the spousal IRA is a traditional IRA, any withdrawals made during the divorce process will be subject to taxes and penalties. This is especially important to note in situations where the couple may need to withdraw retirement funds in order to pay legal fees associated with the divorce.8
If you specified that your IRA division is a transfer due to your divorce in your agreement, no tax will be assessed. This means if you are going to give half of your IRA to spouse, they will have to pay the tax on any distributions they take out of the account after they receive the funds. You won’t owe tax on the assets if you property label your division; however, you’ll both owe taxes and an early withdrawal penalty if not done properly.8
What Is the Income Limit for a Spousal IRA?
The upper income limit for a spousal Roth or traditional individual retirement account (IRA) is $214,000 for 2022 and $228,000 for 2023.5
Do I Have to File a Joint Tax Return to Contribute to a Spousal IRA?
Yes. To open a spousal IRA, you must file your taxes as married filing jointly. This is necessary because your tax return is used to verify that the income level is appropriate for these tax-advantaged investment tools.6
Does the Money in My Spousal IRA Belong to Me or My Partner?
Once the money has been contributed, it belongs to the owner whose name is on the account. In a situation like divorce or separation, this means that the money in the account belongs to the non-income-earning spouse. However, it is very important to note that all combined and individual assets may be subject to the separation agreement. Depending on that agreement and local laws, assets within a spousal IRA may be split or shared between spouses.9
The Bottom Line
A spousal Roth IRA can be an excellent way to boost your tax-advantaged retirement savings if your household has just one income. You’ll pay taxes now and withdraw funds tax free later on, when you might be in a higher tax bracket.
Also, it can be a way to provide a measure of financial security for a spouse who does a great deal of work—but who may not be financially compensated for it.
Remember: A spousal IRA can be structured as either a traditional or a Roth IRA.
© 2023 Investopedia is part of the Dotdash Meredith publishing family.
© Axial Financial Group. All Rights reserved. 5 Burlington Woods, Suite 102 Burlington, Massachusetts
The accompanying pages have been developed by an independent third party. Commonwealth Financial Network® is not responsible for their content and does not guarantee their accuracy or completeness, and they should not be relied upon as such. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. Commonwealth does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products and services offered through Axial Financial Group are separate and unrelated to Commonwealth.