Planning Briefs

Tie The Knot For Retirement With A Spousal IRA

Published Monday, July 25, 2016 at: 7:00 AM EDT

In most families, one spouse does better financially than the other. For example, if you stayed home to look after the children while your spouse worked full-time, you may not have accumulated as much money for retirement as your spouse.

But having a low income doesn't necessarily mean you can't make significant contributions to a retirement account. You and your spouse might consider a spousal IRA. If at least one of you has earned income, you both can contribute to a traditional IRA for your spouse as well, within certain limits, until the working spouse reaches age 70½.

The annual limit for IRA contributions is $5,500 or $6,500 if you're age 50 or older. That ceiling is effectively doubled for a spousal IRA—for example, if both spouses are 55, they can contribute a total of $13,000.

To qualify for a spousal IRA, you must:

Be married;
File a joint income tax return for the year of the contribution; and
Together have earned income of at least as much as your total contribution to all IRAs.

Your contributions might be tax-deductible, but even if your income is too high to qualify for that tax benefit, you still can benefit from tax-deferred growth within the IRA.

Finally, you might opt for a Roth IRA—your contributions won't be deductible but distributions during retirement normally are tax free. And you don't have to take money from the account during your lifetime. (Eligibility is phased out for high-income taxpayers.)

This article was written by a professional financial journalist for Preferred NY Financial Group,LLC and is not intended as legal or investment advice.

An individual retirement account (IRA) allows individuals to direct pretax incom, up to specific annual limits, toward retirements that can grow tax-deferred (no capital gains or dividend income is taxed). Individual taxpayers are allowed to contribute 100% of compensation up to a specified maximum dollar amount to their Tranditional IRA. Contributions to the Tranditional IRA may be tax-deductible depending on the taxpayer's income, tax-filling status and other factors. Taxed must be paid upon withdrawal of any deducted contributions plus earnings and on the earnings from your non-deducted contributions. Prior to age 59%, distributions may be taken for certain reasons without incurring a 10 percent penalty on earnings. None of the information in this document should be considered tax or legal advice. Please consult with your legal or tax advisor for more information concerning your individual situation.

Contributions to a Roth IRA are not tax deductible and these is no mandatory distribution age. All earnings and principal are tax free if rules and regulations are followed. Eligibility for a Roth account depends on income. Principal contributions can be withdrawn any time without penalty (subject to some minimal conditions).