No Income But Want an IRA? Try a Spousal IRA

McCauley Mountain SignsTwo of the largest hurdles to overcome if you want to fund a Traditional or Roth IRA are (1) Making too much earned income or (2) not making enough earned income.

With childcare costs sometimes as much as a parent’s after-tax yearly salary, many parents are making the decision to have one spouse stay home with the child. If that choice is made, why should that parent be penalized from contributing to an IRA just because they have very little or no income? To say they are not working would not be very accurate.

Understanding IRA Rules

First, to contribute to an IRA, you must have earned income. You can contribute 100% of your salary up to $6,000, and an extra $1,000 for a total of $7,000. Second, you cannot contribute if you make too much money. Reductions begin when you make over $104,000 in joint income for Traditional IRAs and over $196,000 in joint income for Roth IRAs (the rules vary slightly if you are not covered by a plan though your work).

How to Contribute to an IRA with No Income

That is where the strategy of a Spousal IRA comes in. To bypass the first rule about needing income, you can open or fund a spousal IRA and get credit for your spouse’s income. Both spouses still need to be under the maximum income limit, but if they are, you can fund a Roth or Traditional IRA for a non-working spouse just like normal. Remember, you can only contribute up to the total of the income, so if one spouse doesn’t work and the other makes $4,000/year, they can only contribute a maximum of $4,000 total between the two. If one spouse is not working, the other must make $12,000 ($14,000 if both over 50) to contribute the maximum to both accounts. All contribution limits, filing dates, and withdrawals work the same.

More About Spousal IRAs

Spousal IRAs are only a coding on your taxes for the contribution type. This means you do not need to open a “Special Spousal IRA”, you can fund your current or a new Roth or Traditional IRA- but remember, the contribution has to go into the non-working spouse’s account.

This is also a great strategy for retired couples looking to add to a Roth IRA- tax free growth with no required minimum distributions. If one spouse is retired and the other still works part time, think about repositioning assets to the Roth. While distribution management is the most important part to managing taxes in retirement, a spousal IRA can also be a useful tool.

Retirement Planning Services in Glens Falls, Saratoga & Albany

Planning for retirement is no easy task, so why go it alone? If you’re looking for retirement income planning services from Albany to the Adirondacks, give me a call at (518) 621-7173, or schedule a free consultation. With 15 years of experience as a financial advisor and CERTIFIED FINANCIAL PLANNER™ Professional, I can help you develop and implement a retirement plan customized around your needs and goals.