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What Is a Spousal IRA? A Guide to Retirement Savings for Couples

By Finkerr #how does a spousal ira work, #ira for non working spouse, #retirement for stay at home parent, #retirement planning for couples, #spousal ira explained, #spousal ira rules
An illustration of a working spouse directing a stream of coins into their own IRA piggy bank and also into their partner's IRA piggy bank. This symbolizes the Spousal IRA rule, which allows a couple to fund a retirement account for a non-working spouse.

Introduction

One of the most fundamental rules for saving for retirement is that you must have earned income to contribute to a retirement account like an IRA. This rule makes sense on the surface. However, it also raises an important question. What about the millions of people who make valuable, non-paid contributions to their household? This includes stay-at-home parents, caregivers for a family member, or a spouse who has returned to school. Does this “no income” rule mean that they are unable to save for their own retirement?

Fortunately, the answer is no. The tax code includes a special and powerful provision to solve this exact problem. It is known as the Spousal IRA rule. This rule recognizes the economic partnership of a marriage. It allows a non-working or low-earning spouse to build their own retirement nest egg. This guide will clearly define what a Spousal IRA is. We will also explain the eligibility requirements. Finally, we will cover how it works and why it is a crucial tool for a couple’s overall retirement strategy.

Defining the Spousal IRA: A Rule, Not an Account

First, it is essential to clarify a common point of confusion. A “Spousal IRA” is not a special type of account that you can open at a brokerage firm. You will not find an account with this specific name. Instead, a Spousal IRA refers to a rule in the tax code. This rule allows a working spouse to make contributions to a Traditional or a Roth IRA on behalf of their non-working or low-earning spouse.

The account itself is a standard Traditional or Roth IRA. It must be opened in the name of the non-working spouse. That spouse is the 100% owner of the account and has full control over it. The “spousal” part of the name simply describes the rule that allows the working spouse’s income to be used to legally fund the account.

Think of it with this simple analogy. Imagine a family has a cell phone plan.

  • There is one main account holder who earns the money and pays the bill. This is the working spouse.
  • However, other family members can have their own individual phone lines and phone numbers under that main plan. This is the non-working spouse.
  • The Spousal IRA is the non-working spouse’s own, personal retirement account. It is just funded by the family’s total household income, which is earned by the working spouse.

The Eligibility Requirements: Who Can Use a Spousal IRA?

To take advantage of the Spousal IRA rule, a couple must meet a few specific requirements set by the government.

  1. You Must Be Legally Married: This provision is only available to couples who are legally married.
  2. You Must File a Joint Tax Return: To be eligible, the couple must file their federal income taxes for the year using the “married filing jointly” status.
  3. The Working Spouse Must Have Sufficient Earned Income: The working spouse must have enough earned income to cover both their own IRA contribution (if they make one) and the contribution for their non-working spouse. For example, to contribute the maximum amount to two IRAs, the working spouse must have at least that total amount in earned income for the year.
  4. The Non-Working Spouse Must Have Little or No Earned Income: This rule is specifically designed for the spouse who earns less than the annual IRA contribution limit for the year.

How a Spousal IRA Works in Practice

The power of the Spousal IRA becomes clear with a practical example. Let’s consider Mark and Sarah, a married couple who file their taxes jointly.

  • Mark is a software engineer. He earns an annual salary of $120,000. He contributes to his own 401(k) plan at work.
  • Sarah is a stay-at-home parent. She is currently raising their two young children. She has no earned income of her own for the year.

Without the Spousal IRA rule, Sarah would not be able to contribute to an IRA for the year. However, because Mark and Sarah meet all the eligibility requirements, they can use this powerful strategy.

  1. First, Sarah opens a Roth IRA in her own name at a brokerage firm. She is the owner and makes all the investment decisions for the account.
  2. Next, they fund their accounts. Mark’s income of $120,000 is more than enough to cover contributions for both of them. For the 2025 tax year, they decide to contribute the maximum amount of $7,000 to an IRA for Mark. Then, using the Spousal IRA rule, they also contribute the maximum of $7,000 to Sarah’s Roth IRA.
  3. As a result, thanks to the Spousal IRA rule, Mark and Sarah were able to save a total of $14,000 in their IRAs for the year. This allows them to effectively double their household’s IRA savings, even on a single income.

The Strategic Benefits of a Spousal IRA

The Spousal IRA is more than just a way to save more money. It offers several important strategic benefits for a couple’s financial plan.

  • It Empowers the Non-Working Spouse: The rule provides a direct way for a non-working spouse to build their own retirement nest egg. This creates a valuable sense of financial security, independence, and partnership within the marriage.
  • It Doubles a Couple’s Tax-Advantaged Savings: For a single-income household, the Spousal IRA is a powerful tool. It allows the family to maximize their use of tax-advantaged retirement accounts, which can significantly accelerate their path to their retirement goals.
  • It Can Provide Tax Diversification: A couple can use the Spousal IRA to create valuable tax diversification for their retirement. For example, the working spouse might be contributing to a pre-tax Traditional 401(k) at work. The couple can then decide to make the spousal contribution to a post-tax Roth IRA. This strategy provides them with both taxable and tax-free sources of income in retirement.
  • It Protects Both Partners: The money in the Spousal IRA is the legal property of the spouse in whose name the account is held. This provides a crucial layer of financial protection for that individual in the unfortunate event of a divorce or the premature death of the working spouse.

Conclusion

In conclusion, the Spousal IRA is a crucial and often overlooked provision in the retirement savings landscape. It is not a special type of account. Instead, it is a powerful rule that acknowledges the profound economic partnership of a marriage. It allows a working spouse to fund a retirement account for their non-working or low-earning partner.

This important rule ensures that a spouse who steps out of the traditional workforce to raise a family, support their partner’s career, or for any other reason is not unfairly penalized in their ability to save for a secure future. For married couples, and especially for those who are living on a single income, the Spousal IRA is an essential tool. It allows you to work as a team, maximize your tax-advantaged savings, and ensure that both partners are on a steady path to a comfortable and dignified retirement.