Non-working Spouse with Little to No Earned Income? You May Still be Able to Save toward Retirement
Spouses who file joint income taxes returns and who have little to no earned income, such as a stay at home parent taking care of the couple’s children, may still be able to save toward retirement with a Spousal IRA. This can help to accelerate a couple’s retirement savings.
The contribution limits for a Roth or Traditional IRA in 2019 are $6,000 with an additional $1,000 contribution permitted for those age 50+. In essence, a married couple can save $12,000 ($14,000) in toward retirement this year.
Please note that these are not joint accounts - they are individual retirement accounts. The working spouse would make the contribution in an account titled in the name of the non-working spouse.
If neither spouse is contributing to a workplace retirement plan, the contribution amounts may be fully tax-deductible. However, if one spouse is also contributing to a workplace retirement plan, they are subject to a phase-out schedule for deductibility. It is also important to note that the earned income of the working spouse must be equal to or greater than the combined amount of the contribution to both accounts.
Retirement is one of the most expensive goals facing people. With longer life spans, it can last for decades. The spousal IRA may be one additional strategy toward your retirement.
Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax. The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.
Seek professional advice before taking any action in regard to your finances.
This information is provided for educational purposes only and is not intended to offer specific advice to any individual.
Todd A. Slingerland, CFP®
6 Tower Place Albany, NY 12203