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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 for other IRA options. This is because the maximum amount that can be contributed to an IRA is $5,000 US dollars (USD), or 100% of an individual’s total income, whichever is less. For an at-home spouse with zero income, there is no way to establish their own IRA because 100% of their income is nothing.
Fortunately, there is a provision for at-home parents. A spousal IRA lets the working spouse contribute extra money to their own IRA on their spouse’s behalf. The extra 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 working spouse’s income is used to determine contribution amounts for both IRAs, not just his or her own.
A spousal IRA can be set up through a Roth or traditional IRA. The couple must be married, and must file their taxes jointly. Contributions to the IRA are limited by the same rules as regular IRA accounts. For example, in a traditional IRA, the maximum amount that an individual can contribute yearly 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 USD annually. Spouses over the age of 50 can contribute an extra $1,000 USD a year each, or $12,000 USD total.
Unlike many of the other joint financial ventures in marriage, like savings or checking accounts, spousal IRAs are held separately. Each spouse has their own account, even though the accounts are being funded together. In the case of divorce or legal separation, each spouse gets to keep their own IRA. For the year of the divorce, however, contributions to the non-working spouse’s IRA cannot be counted for tax deductions.
Couples can begin receiving regular IRA payments, or one lump sum, after they reach 59 ½ years of age, without penalties. This leaves 20 to 30 years of reasonable life expectancy with no income from a job site, leaving the couple to depend on the money they have saved for these years. Developing an IRA for a non-working spouse is important because it allows for a couple to contribute double the regular limits, securing a comfortable retirement. A retirement planner or financial consultant can assist couples in choosing the IRA options that are best for their personal needs.
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