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Bridging the Gap with a Spousal IRA

Bridging the Gap with a Spousal IRA

Bridging the Gap with a Spousal IRA

Published: February 24, 2015

An IRA study found that women lag behind men when it comes to accumulating money for retirement (see chart). Though there may be multiple reasons for this disparity, the most fundamental is the continuing wage gap between men and women.1

This gap tends to widen around the age when many women have children, which suggests that time away from the workforce may have a negative impact on a woman’s career.2 It also stands to reason that if a mother — or stay-at-home dad — is taking care of the children rather than working, she or he may not be contributing to a retirement account. The same situation could arise later in life if one spouse works while the other takes time off.


Additional Saving Opportunity
A spousal IRA — funded for a spouse who earns little or no income — offers an opportunity to help keep the retirement savings of both spouses on track. It also offers a larger potential tax deduction than a single IRA.

For the 2014 and 2015 tax years, an individual with earned income (from wages or self-employment) can contribute up to $5,500 to his or her own IRA and up to $5,500 more to a spouse’s IRA — regardless of whether the spouse works or not — as long as the couple’s combined earned income exceeds both contributions and they file a joint tax return. An additional $1,000 catch-up contribution can be made for each spouse who is age 50 or older. Contributions for 2014 can be made up to the April 15, 2015, tax filing deadline.

All other IRA eligibility rules must be met. So if a spousal contribution to a traditional IRA is made for a nonworking spouse, she or he must be under age 70½ in the year for which the contribution is made. The age of the working spouse does not matter for purposes of the spousal IRA.

Traditional IRA Deductibility
If neither spouse actively participates in an employer-sponsored retirement plan such as a 401(k), contributions to a traditional IRA are fully tax deductible. However, if one or both are active participants, federal income limits may affect the deductibility of contributions.

In 2015, contributions to the IRA of an active participant will phase out with a modified adjusted gross income (AGI) between $98,000 and $118,000, but contributions to the IRA of a nonparticipating spouse will phase out with an AGI between $183,000 and $193,000. (The income ranges were slightly lower in 2014.) Thus, some participants in workplace plans who earn too much to deduct an IRA contribution for themselves may be able to deduct an IRA contribution for a nonparticipating spouse.

Annual required minimum distributions (RMDs) from traditional IRAs and most employer-sponsored retirement plans must begin for the year in which the account owner reaches age 70½. Withdrawals taken prior to age 59½ may be subject to a 10% federal income tax penalty, with certain exceptions as outlined by the IRS.

1) The Washington Post, May 21, 2014
2) Pew Research Center, 2013

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright 2015 Emerald Connect, LLC.