Who Should Consider a Joint IRA, According to a Financial Planner

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If your employer doesn’t offer a 401(k) plan or you want to set aside more money for retirement, you might consider an Individual Retirement Account (IRA). But to make IRA contributions, you must be receiving taxable compensation as defined by the IRS, which means taxed wages or self-employment income. If you’re leaving the job market or earning money on the black market, you’re missing out. Unless…

If you are married and your spouse is still working, they may be able to create an IRA for you. Here’s how spousal IRAs work and the benefits of using them.

How spousal IRAs work

A spousal IRA is not actually a type of separate IRA account – rather, it is a traditional IRA or Roth IRA set up in the name of a spouse who has little or no income. This may include those caring for children or other family members, workers returning to school, or people who have left the workforce for another reason.

To be eligible for a spousal IRA, you must meet a few conditions:

  • You must file your taxes as a “married filing jointly”.
  • The earning/contributing spouse must make enough to cover contributions to both their own IRA and the spouse’s account.
  • In 2022, the IRA contribution limit is US$6,000 ($8,329) per year for those under 50 and US$7,000 ($9,717) for those 50 and over. A couple can deposit a total of US$12,000 ($16,658) into the two accounts – US$13,000 ($18,047) if one person is 50 or older, and US$14,000 ($19,435) if both spouses are 50 or older.
  • There are income-based contribution limits for Roth IRAs and tax deduction limits for traditional IRAs based on your tax status. These may affect the type of account you select.

One of the keys to a spousal IRA is that ownership remains with the person named on the account, regardless of which spouse contributes to it. It also means that an existing IRA — funded while the account owner was in the workforce — can be a spousal IRA if that person no longer earns income and their partner contributes to the account on their behalf.

Should you set up a joint IRA?

If you meet the criteria and have the financial means to maximize multiple retirement accounts, you should probably consider a spousal IRA.

Spousal IRAs are the right solution for many couples, says Catherine Valega, certified financial planner at Green Bee Advisory in Massachusetts.

“In many cases, if one spouse is not working, they are missing out on retirement assets in their name, not to mention the reduced opportunity for tax-deferred growth as a couple,” Valega says.

As mentioned, you can use a traditional IRA or a Roth IRA as your spousal account. The former uses pre-tax income, reducing your tax burden now, while the latter comes from after-tax income and can be leveraged tax-free later. Generally, those who expect to earn more are more likely to consider the Roth route, but you should do your research and possibly consult a financial planner if you are unsure which option is best for you. .

What Happens to an IRA Spouse in a Divorce?

While spousal IRAs can be touted as financial protection in the event of a divorce, it’s not that simple. Depending on the account calendar and your state’s laws, retirement accounts may be considered marital assets and divided accordingly.

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