Opinion: Married Couples May Want to Consider the Spousal IRA

Daniella Cressman

Disclaimer: This information is accurate and true to the best of my knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.

"There are myriad financial advantages to getting married. You might have access to higher quality health care thanks to a spouse’s benefits plan. You may have increased borrowing power from pooling incomes, making it easier to buy a home. You could have a lower tax burden (unless you’re both high earners, then it’s often higher)." —Erin Lowry

While you ought to get married out of love for one another, the legal agreement does come with a myriad of financial benefits. That being said, divorce comes with its own set of financial consequences, particularly if your separation is not amicable.

Nonetheless, married couples can take advantage of the spousal IRA, meaning that one partner can set themselves up for a happy and healthy retirement even if they are currently unemployed.

"Marriage...unlocks an under-discussed retirement option: the spousal IRA. Whether your employment situation changes because of layoffs, or you’re taking time off to care for a family member, return to school or just take a break, a spousal IRA offers a way to stay on track for a healthy retirement. Yet many people don’t know it exists. It can take the form of either a traditional or Roth IRA; the key difference is it’s only available for married couples where one spouse elects to leave the workforce and is earning little to no taxable income." —Erin Lowry

Once the money is contributed to the spousal IRA, it belongs to the person whose name its under: this could offer protection for stay-at-home parents, who are usually women, in the case of a divorce.

"Once the money is contributed into a spousal IRA, it belongs to the person whose name it’s under. This means stay-at-home parents and those who leave the workforce temporarily have a way to protect their financial futures, especially in the case of a future divorce. (Most of the time, these spouses are women: As of June 2022, labor force participation rates for women ages 25 to 54 were 76.4% in the U.S., while men’s were 88.4%, according to the Department of Labor.)" —Erin Lowry

To be eligible, you must be a married couple and one of you needs to earn enough to contribute to the spousal IRA for both parties.

"To be eligible, you must be a married couple and file joint taxes. One spouse must still earn enough to cover both their own contributions and the contributions for the separate spousal IRA. For example, in 2022, those under 50 can contribute up to $6,000 to an IRA; those 50 and above can contribute $7,000 to an IRA. That means an earning spouse under the age of 50 needs an income of at least $12,000 to make full use of a spousal IRA ($6,000 for contributions to their own IRA, and $6,000 for their spouse’s)." —Erin Lowry

Spousal IRAs also offer tax advantages.

"Spousal IRAs also offer a tax advantage. Depending on income levels, the couple could elect to do a traditional IRA, which allows their taxable income to be reduced now, or use a Roth IRA, in which they contribute post-tax income but are able to withdraw the money tax-free in the future." —Erin Lowry

It is just fine if the earning partner is covered through a retirement plan at work, but this will affect how many contributions you can deduct from your taxable income.

"It’s fine if the earning spouse is covered through a retirement plan at work, but this could impact how much of your contributions you can deduct from your taxable income. For example, if you’re married, filing jointly and covered by a retirement plan at work, then your ability to take a tax deduction from traditional IRA contributions phases out at an adjusted gross income of $129,000 in 2022. The twist is, you can still contribute to a traditional IRA, you just don’t get a tax benefit for doing so. Those with an AGI of less than $109,000 can take the full deduction; those more than $109,000 but less than $129,000 get a partial deduction. (The numbers are different for Roth IRAs.)" —Erin Lowry

In my opinion, this should be standard procedure for every married couple with one non-earning partner: no one wants a divorce, but it is deeply unfair to leave the parent of your child with few to no resources in the worst-case scenario, and, in the best-case scenario, chances are high that you will both have more than enough to enjoy during your golden years.

It's important to keep in mind that $1 million in retirement, generally speaking, would provide you with about $40,000 per year: You can afford to have a few creature comforts, but this will not lead to a life of luxury. Ideally, people would save even more than that, although doing so is no easy feat considering the sky-high cost of inflation and the pile of expenses most families have to manage, including childcare, college tuition, and the increased price of groceries and gasoline, not to mention everyday household items.

"...Most personal finance advice focuses on $1 million by the retirement age, usually 65, being a low-end benchmark to retire comfortably. This would mean $40,000 a year upon which to live if you apply the 4% withdrawal rule. Many people are nowhere close to this figure, even when supplemented with Social Security." —Erin Lowry

In short, investing in a spousal IRA is probably in your best interest.

"So, couples with the means to be thinking about retirement should consider every tool at their disposal. And you don’t have to max out contributions to a spousal IRA. Even contributions less than the $6,000 or $7,000 maximum will be advantageous. Many partners will need to leave the workforce at one point or another — that shouldn’t stop them from protecting their financial futures." —Erin Lowry

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Albuquerque, NM

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