What is a Spousal IRA? And How to Open One

Written by Kim PinnelliUpdated: 13th Jan 2021
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To open an Individual Retirement Account (IRA), you need earned income unless you’re married, then there’s an exception. As long as one spouse works, you can open a spousal IRA for the non-working spouse.

There are some rules you must know before you take advantage of this option, though.

What is a Spousal IRA?

A spousal IRA is an individual retirement account in the name of a non-working spouse. As long as the working spouse has enough income to cover the amount contributed to BOTH IRAs, they can contribute to a non-working spouse.

A spousal IRA is not a joint IRA – each spouse has his/her own account. You contribute to each one separately, and they perform independently too.

How Does a Spousal IRA Work?

A spousal IRA works the same as an individual IRA. You open the account for your spouse and contribute like you would for your IRA.

You may open a traditional IRA or Roth IRA depending on how you want to manage the taxes. In atraditional IRA, you get a tax deduction in the year you contribute the funds but pay taxes on all withdrawals (contributions plus earnings).

A Roth IRA is after-tax contributions, meaning you don’t get the tax deduction now, but your contributions and earnings grow tax-free. You pay no taxes when you withdraw.

Discuss the options with your financial advisor to determine when you think you’ll have the lower tax bracket. If you’re in a lower tax bracket now, a traditional IRA makes sense. If you believe your tax bracket will decrease in retirement, a Roth IRA is the better option.

Related: Differences between Roth IRA and Traditional IRA

Who is Eligible for a Spousal IRA Contribution?

Any married couple with at least one spouse earning income and who file taxes married filing joint are eligible.

The earned income must exceed the contributions made. The spouse can contribute to both his/her own account and the spouse’s account.

Spousal IRA Contribution Limits

All IRAs have contribution limits, and spousal IRA contribution limits are the same as if they opened the account themselves.

In 2021, you may contribute up to $6,000 per account for a total of $12,000. If you’re over the age of 50, you may contribute an additional $1,000, for a total of $7,000 in contributions for a total of $14,000.

If your spousal income is less than $12,000 (or $14,000), you may only contribute up to the amount of your income.

Excess Spousal IRA Contribution Penalties

If you contribute more than $6,000 (or $7,000) per account, you’ll pay an excise tax each year equal to 6% of the excess amount.

You’ll pay this amount every year the excess remains in your account. If you want to avoid this tax (as it doesn’t make sense to keep it there), withdraw the excess contributions AND earnings by April 15th your tax filing deadline.

Spousal IRA Rules

I covered the most important rule – the wage-earner must make at least as much as he/she contributes to both IRA accounts. Other rules include:

  • You must file your taxes married filing jointly, not married filing separate
  • The non-working spouse owns the IRA account in his/her name; the working spouse doesn’t have control or ownership of it
  • You can contribute at any age to either a traditional (this is new this year) or Roth IRA
  • You must meet the income guidelines, or your contributions may be limited for a traditional IRA. If you make $105,000 or less and have an employer-sponsored 401K, you can contribute and deduct the full amount. If you make more than $125,000 with a work 401K, you can’t deduct IRA contributions, and if you fall in between those two numbers, you’ll get a partial deduction.
  • If you open a Roth IRA, you must meet the following income guidelines, or you can’t contribute. If you make less than $198,000 per year, you may contribute to both Roth IRAs. If you make over $208,000, you are ineligible for a Roth IRA, and if you fall somewhere in between, you may make reduced contributions.

How to Open a Spousal IRA

If a spousal IRA sounds right for you, it’s easy to open one. First, choose your option from below.

  • Robo-Advisors: If you do not mind working digitally with little human interaction, a robo-advisor is a good option. They have much lower fees and provide a lot of guidance as you make your investment choices. Some even rebalance your portfolio as it changes with the market fluctuations.
  • Brokerages: If you’d prefer more handholding, consider an online discount broker like Charles Schwabor Vanguard. You’ll still work digitally but have access to more advice and handholding. You’ll pay more fees for a broker, so make sure you choose wisely.

Bottom Line: What is a Spousal IRA?

If you’re married and your spouse doesn’t work, opening a spousal IRA helps set him/her up for retirement too.

Even though you’re married, opening two retirement accounts doubles your contribution limit each year from $6,000 to $12,000. Plus, you give your spouse an account of his/her own should anything happen in the future.

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Kim Pinnelli
Kim Pinnelli

Kim Pinnelli is a Senior Writer, Editor, & Product Analyst with a Bachelor’s Degree in Finance from the University of Illinois at Chicago. She has been a professional financial writer for over 15 years, and has appeared in a myriad of industry leading financial media outlets. Leveraging her personal experience, Kim is committed to helping people take charge of their personal finances and make simple financial decisions.