What Is A Spousal Roth IRA?

Many individuals have heard of Roth IRA’s or may even already use one. A Roth IRA is a retirement plan that a working person contributes funds to. Contributions are not tax deductible, but qualified ones are tax-free. However, one may be penalized if they do not make qualified withdrawals for their funds. The specific “rules” for one’s individual plan will vary depending on the company offering it. One’s Roth IRA eligibility may vary as well. One should read the details of their plan to find out for sure.

A spousal Roth IRA is one that allows two people to contribute to the plan. However, the plan is not exactly what it sounds like. There is not actually a product called a spousal Roth IRA, but rather a spouse’s income is relied upon when one makes a contribution. What this means is that one makes a contribution based on how much money their spouse makes. Certain rules might require that one contribute a designated amount of their wages to their retirement account, so this allows a little flexibility. If one wants to exceed their allowable contribution without paying taxes on it, they can often use this type of stipulation to their advantage.

Just like with a traditional spousal IRA, spousal Roth IRA eligibility varies. However, in most cases, if one files a joint tax return with their spouse, they are allowed to make spousal Roth IRA contributions, even if they do not have their own qualifying income.

This type of retirement plan often allows both spouses to make maximum contributions to one account. Still, in actuality and legality, the account still belongs to one individual. There is no such thing as a joint IRA, as the “I” in IRA stands for “individual”. If one combines their funds with their spouses or any other joint holdings, this can disqualify the IRA from tax eligibility.

The regulations regarding spousal type retirement plans are set by the Internal Revenue Service, or IRS. Publication 590 in particular sets the rules for IRAs, and is the concrete source for information that one should rely on in respect to this type of account. It is important to know the rules regarding a certain type of account before investing, especially when it comes to two people attempting to contribute to a spousal type retirement plan. A good understanding of regulations can prevent future legal hassle or even penalties from the IRS.