Save for Retirement with a Spouse IRA

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 taking a break from working means an end to regular paychecks and retirement benefits such as 401(k) plans and the inability 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 individuals who are working to make annual contributions 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 Individuals can choose a traditional IRA, where taxes are paid at the time of retirement when money is withdrawn from the account, or a Roth IRA, where taxes are paid when contributions are made, allowing the beneficiary to take out tax-free distributions once they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 for higher-income taxpayers.

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