Spousal IRA

A Spousal IRA is an individual retirement arrangement opened for a spouse who earns little or no taxable compensation, funded with contributions based on the working spouse's earned income rather than the account holder's own. The IRS normally requires you to have compensation to contribute to an IRA; the spousal IRA rule is the exception, letting a married couple filing jointly count the working spouse's compensation toward contributions for both spouses. Each spouse still owns and controls a separate account — the money isn't jointly titled — and a spousal IRA can be either a Traditional or a Roth IRA, whichever fits that spouse's situation better.

To use the spousal IRA rule, the couple must file a joint federal tax return, and their combined compensation for the year must be at least equal to the total contributed to both spouses' IRAs. There's no requirement that the non-working spouse have any income of their own — a stay-at-home parent or a spouse between jobs can fully fund an IRA this way, as long as the working spouse earned enough to cover both contributions.

Which type of IRA makes sense depends on the non-working spouse's own eligibility. A spousal Roth IRA is subject to the same married-filing- jointly income phase-out that applies to any Roth IRA — based on the couple's combined modified adjusted gross income, not either spouse's individual earnings. A spousal Traditional IRA follows its own rule: if the contributing spouse isn't covered by a workplace retirement plan but the other spouse is, the deduction phases out at a separate, higher combined-income range than it would for a spouse who is covered. Compensation rules aside, the account itself works exactly like any other IRA once it's funded — same contribution limits, same withdrawal rules, same investment choices.

A hypothetical example: David earns $95,000, and his wife, Priya, left her job this year and has no earned income of her own. Filing jointly, David's compensation covers contributions to both of their IRAs — he can contribute up to the annual IRA limit to his own IRA and up to the same limit to a spousal IRA opened in Priya's name, as long as their combined compensation is at least as much as both contributions added together. If David is 50 or older, each of them can also add the age-50-and-over catch-up contribution to their respective accounts.

Because Priya's IRA is legally hers, she chooses how it's invested and decides when to withdraw from it going forward — David's income funds it, but Priya controls it.

Pros

• Lets a household roughly double its annual IRA contributions even when only one spouse has earned income.
• The non-working spouse builds their own retirement savings rather than relying entirely on the working spouse's accounts.
• Works with either a Traditional or Roth IRA, whichever fits the couple's tax situation.

Cons

• Only available to married couples who file a joint tax return — not an option if you file separately.
• The account is still subject to normal IRA contribution and income limits; a high combined income can phase out or eliminate the deduction or Roth eligibility.
• If the marriage ends, the account stays with the spouse whose name is on it — it isn't automatically split.