Stay-at-home parents cannot set up their own IRA due to lack of income, but a spousal IRA allows a working spouse to contribute extra money on behalf of their non-working spouse. Spousal IRAs are held separately and can be established through a Roth or traditional IRA. Couples can contribute up to $10,000 annually, and each spouse has their own account. A retirement planner or financial consultant can help couples choose the best IRA options for their needs.
Many families choose to have one spouse stay at home to raise their children, either for a couple of years or permanently. The stay-at-home parent does not have the option of their own employer-sponsored IRA plan, and their lack of income disqualifies them from other IRA options. This is because the maximum amount that can be contributed to an IRA is $5,000 United States Dollars (USD), or 100% of a person’s total income, whichever is less. For a spouse at home with zero income, there is no way to set up her own IRA because 100% of her income is nothing.
Fortunately, there is a provision for parents at home. A spousal IRA allows a working spouse to contribute extra money to their own IRA on behalf of their spouse. The additional savings potential means that both spouses will be covered for retirement. The main difference between a regular IRA and a spousal IRA is that the income of the working spouse is used to determine the contribution amounts for both IRAs, not just yours.
A spousal IRA can be established through a Roth or a traditional IRA. The couple must be married and file their taxes jointly. IRA contributions are limited by the same rules as regular IRA accounts. For example, in a traditional IRA, the maximum amount an individual can contribute annually is $5,000 USD, or 100% of the individual’s annual income, whichever is less. For a spousal IRA, the limit is the same for both spouses, meaning that together they could contribute up to $10,000 annually. Spouses age 50 and older can contribute an additional $1,000 per year each, or $12,000 total.
Unlike many of the other joint financial ventures in the marriage, such as checking or savings accounts, spousal IRAs are held separately. Each spouse has their own account, even though the accounts are being funded together. In the event of divorce or legal separation, each spouse can keep their own IRA. However, for the year of the divorce, contributions to the non-working spouse’s IRA cannot be counted for tax deductions.
Couples can start receiving regular IRA payments, or a lump sum, after they turn age 59 1/2, with no penalties. This leaves 20 to 30 years of reasonable life expectancy without income from a workplace, leaving the couple to rely on the money they have saved over the years. Developing an IRA for a non-working spouse is important because it allows a couple to contribute twice the regular limits, ensuring a comfortable retirement. A retirement planner or financial consultant can help couples choose the IRA options that are best for their personal needs.
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