As tax season unfolds, it presents an excellent opportunity for married couples to take full advantage of available tax deductions. One effective approach not to overlook is making contributions to a spousal IRA.

When one spouse is not part of the workforce, there is a chance of missing out on retirement savings in their name, which hampers the potential for tax-deferred growth for the couple.

Unlocking Potential: Doubling Your Retirement Tax Deductions

For the year 2024, the contribution limit for an IRA stands at $7,000 for individuals under 50, while those 50 and above can contribute up to $8,000. It’s important to note that contributions for the 2024 tax year can be made until the tax deadline on April 15, 2025. Typically, you can only contribute up to those limits for your own IRA, which necessitates having an income. As always, it is advisable to max out these limits whenever feasible. Yet, through a spousal IRA, both partners can contribute up to the limits in an IRA under the earning spouse’s name.

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This effectively doubles the amount the household can save in IRAs each year (both pre-tax or Roth). The key requirement is that the spouse who holds the IRA must have sufficient earned income to fund both accounts.

For example, if Alex earns $100,000 annually while Kevin stays at home with no income, Alex can contribute $7,000 to her IRA plus an additional $7,000 to an IRA in Kevin’s name. This totals $14,000 that their household deposits into IRAs instead of just the $7,000 limit that Alex would have alone.

Understanding Spousal IRAs

A spousal IRA isn’t categorized as a unique IRA type but refers to a traditional or Roth IRA established in the name of a non-earning spouse. This is applicable for caregivers, individuals who returned to school, or anyone who has stepped back from the workforce.

Eligibility for a spousal IRA involves meeting several conditions:

• Tax returns must be filed as “married filing jointly.”

• The earning spouse must generate enough income to cover their own IRA contributions as well as those for the spousal account.

• There are income limitations regarding contributions for Roth IRAs and tax deductions for traditional IRAs, influenced by tax filing status, which can affect account selection.

A significant aspect of a spousal IRA is that the account’s ownership remains with the individual for whom it is established, regardless of contributions made by the spouse. Thus, an IRA established while the account holder was employed can function as a spousal IRA, allowing their partner to contribute once they are no longer earning income.

Conclusion

Couples who qualify can leverage a spousal IRA to double their contributions to traditional individual retirement accounts (IRAs) even if only one partner has an income. They can deduct a total of $14,000 in the year 2024, rather than just $7,000 for the single income earner, as long as contributions are made by April 15. This allows married couples to optimize their spousal IRA contributions, significantly enhancing their tax-advantaged retirement savings. Just ensure clarity regarding which spouse the contribution is for when sending funds to the IRA provider.

With strategic planning, utilizing a spousal IRA can noticeably bolster a household’s retirement resources. Making contributions before the tax day allows for an immediate tax deduction—ensuring no tax advantages are overlooked.