What Is A Spousal IRA?

Saving up for future retirement can be difficult, especially if only one spouse is working. With the present economic conditions, people are having a hard time staying employed. As a result, many couples only have one spouse with a job. This means the nonemployed partner will not have the same opportunities for built-in retirement as their working spouse.

What Is A Spousal IRA?

A spousal IRA will allow one partner to stay at home, yet still contribute the full amount to their retirement account each year. Even if one partner is not earning any income, the couple can still apply if one spouse earns enough money to cover the contribution for both of them. This is an excellent deal if one partner is not likely to get a job in the future.

Contribution Limits

Spousal IRA contributions can be made to either a Roth IRA or a traditional account. Just like any other retirement account, the couple will be subject to contribution limits according to their annual salary. Some couples may choose to combine the maximum limit of Roth IRA and traditional since it provides a higher contribution, but applicants cannot exceed the combined limit.

Spousal IRA Rules

Just like any other retirement account, spousal IRA rules will need to be followed explicitly. Any variation from these rules without permission may lead to penalties. Once the money has been deposited in a spousal IRA account, it belongs to the spouse that does not earn wages, regardless of where the money was obtained. The wage-earning partner only needs to make enough money to cover the IRA contribution and any other retirement contributions for which he/she has signed up.

Traditional IRA Guidelines

The minimum rate for fund distribution is mandatory at the age of 70. There are several different situations where couples can withdraw money from their account without penalization. Some examples are buying a house for the first time, withdrawing for disability, IRS tax levy, and the individual’s death. Other insurance costs may also qualify for penalty-free withdrawal, such as health insurance and education insurance.

A spousal IRA has the exact same consequences that apply to a normal retirement account. There are no special rules, since the only difference is that one partner is relying on his/her spouse to make the contribution for him or her. In the end, it is up to each individual to decide which retirement plan is best. Some couples may be in the ideal situation for a spousal IRA, while others may find it limited. Regardless, always look at all the available options before making a final decision.