Soaring childcare costs are spurring more and more people–both women and men– to take a break from traditional careers in order to care for school-age children. But that doesn’t mean they should pause their retirement savings as well.
Though becoming a nonworking spouse means an end to regular paychecks, retirement benefits such as 401(k) plans, and the ability to open or contribute to an individual retirement account (IRA), there is still a way to legally continue saving for retirement through a traditional investment vehicle. Spousal individual retirement accounts allow working individuals to annually contribute to an IRA on behalf of a spouse with whom they file a joint tax return. And, following the Supreme Court’s recognition of same sex-marriages in 2015, the Internal Revenue Service (IRS) allows same-sex couples who are legally married to also take advantage of spousal IRAs.
Spousal IRAs operate in much the same way as other IRAs. Individuals can choose a traditional IRA, where taxes are paid at the time of retirement when money is withdrawn from the account, or a Roth IRA, where taxes are paid when contributions are made, allowing the beneficiary to take out tax-free distributions once they retire.
As with other IRAs, spousal IRAs can be beneficial to a couple’s bottom line during tax season. Contributing to a traditional IRA may increase the overall tax deduction a couple can take. That’s not the case with Roth IRAs, however. Taxes on contributions to Roth IRAs are paid the year contributions are made, but the amount a beneficiary will have available at the time of retirement will be higher since distributions from these vehicles are tax-free.
Spousal IRAs are subject to deduction and contribution limits just as regular IRAs are, and deductions may be limited for those covered by employer-sponsored retirement plans and higher-income taxpayers. For more information, read the IRS’s publication 590-a here.
| FIND A SURCHARGE-FREE ATM! | |
|
|
|
|
|