Show Them You Care With a Spousal IRA Contribution

August 10, 2007

Let’s be honest.  Sometimes a “non-working” spouse actually works harder with their duties at home than the working half does on the job.  What’s the best way to show them your appreciation, how about by contributing to a spousal IRA!

Keeping Up IRA Contributions
Okay, this move probably won’t win you the spouse of the week award from your significant other but they’ll thank you for it later in life.  I wrote the other day how I had cancelled my wife’s Roth IRA automatic contributions because she’ll be staying at home with our son.  I mentioned this to a money buddy at work yesterday and he set me straight, “Go home and read about Spousal IRA’s”!

Who Is Eligible for a Spousal IRA?
Typically a person must have an income to qualify for IRA contributions; however, the IRS guidelines allow an employed spouse to make contributions for their non-working husband or wife.  An article from Investopedia lays out the requirements you must meet to use a spousal IRA:

  • You must be married.
  • You must file a joint income-tax return.
  • You must have compensation or earned income of at least the amount you contribute to your IRAs.

There are no income limits on who can contribute to a traditional IRA but an article from Smart Money explains the earnings cap for a Roth IRA,  the deductibility rules for a traditional IRA, and how any employer-sponsored retirement plan investments play into contributions limits.

Re-arranging Retirement Accounts
After our retirement investing changes, I was maxing out my Roth IRA then contributing the rest of our “retirement budget” to my 401k; more than enough to get the match of course.  After learning about the spousal IRA, I plan on maxing out both of our IRAs and putting less into my 401k; still enough for the match though.

Why Use a Spousal IRA?
Although this change will increase our Adjusted Gross Income it seems to be a good trade off since the Roth will give us more flexibility than the 401k in the pre-retirement future.  This is because the tax code allows you to withdraw non-rollover Roth IRA contributions (not the earnings) at any time without paying tax or penalty. 

We have a big enough head start on the 401k, I’d rather put our money into a Roth in case we need it 20 years down the road.  Since our income is dropping sharply due to the loss of my wife’s paycheck, the reduction in tax savings from putting less pre-tax into the 401k won’t put us in danger of crossing over into a higher tax bracket.

Showing Them You Care!
My wife doesn’t care much for talk of IRA’s, 401ks, or AGI so it’s my job to make sure these things are covered.  Sure it’s not the same as a dozen roses or diamond earrings but I’m pretty sure that 30 years from now she’d much rather have a big fat IRA than dead roses or overpriced jewelry.  A spousal IRA is a good way to help make sure your spouse at home will be “paid” someday for all the work they’re doing at home today.


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Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn't like the other kids... His addiction to personal finance has paid off for his family and now he's helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.

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6 Responses to Show Them You Care With a Spousal IRA Contribution

  • pfmoron

    My wife is a stay-at-home mom as well and I too will be fully funding her Roth IRA before funding my own. I fund my 401k at work and even though it doesn’t really matter which Roth IRA we fund first, especially if both are going to be maxed out, it is that “Personal” side of Personal Finance that makes it appropriate for us to fund Her Roth first.

    We both work hard and deserve the reward of seeing our individual retirement accounts grow. The savings will still benefit both of us come retirement and will pass to the other should one of us predecease the other, so it’s really nothing more than a show of appreciation and respect by making sure your non-income producing spouse’s IRA is funded before you max out all of your own accounts.

    Excellent Post.

  • Ben

    plonkee, I think you’re right, women do tend to live longer lives and I see your point. The way it worked out we’ll be maxing out both of our IRA’s so she should be all set.

  • plonkee

    I’m thinking that in this case you spouse is your wife. This means that you need to be extra specially careful since it is likely that you wife will outlive you. Its not because your wife works hard at home that she needs an IRA it is because she will undoubtedly need one that its arguable that this should be funded before yours.


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