Retirement expenses are no different for non-working spouses than they are for working spouses, so it's important that individuals continue to save for their retirement even after saying, "I do." Although most married individuals can start saving for their retirement years by participating in their employer's retirement plan or by contributing to an IRA, non-working spouses also have the opportunity to save for their retirement even if they don't meet the requirements to open an IRA.
The IRS generally requires individuals to earn some form of taxable compensation in order to open and contribute to an IRA. However, non-working spouses who file a joint tax return with their working spouse are allowed to use their spouse's taxable income to meet this requirement under what is known as the spousal IRA rule. With the spousal IRA rule, a non-working spouse may open an IRA and is generally subject to the same tax rules.
Tax Deductible Contributions
Both working and non-working spouses have the same limitations on how much money they can contribute to their IRAs each year. As of the time of publication, the yearly contribution limit for traditional IRAs is $5,000 or $6,000 if a person is age 50 or older. Generally, these contributions are also tax-deductible. However, under the spousal IRA rule, the amount that the non-working spouse can contribute to her IRA and deduct from their taxes may be subject to certain phase-out rules if her working spouse also uses the qualified retirement plan offered through his work. Under these circumstances, a non-working spouse would not be able to deduct her contribution if the couple's adjusted gross income (AGI) is $179,000 or more, as of the time of publication.
Non-working spouses also have the option of contributing to a Roth IRA. Although all contributions to a Roth IRA are tax-deductible regardless of whether or not the working spouse also contributes to a qualified retirement plan, it is important to remember that there are contribution limits for married couples filing jointly. As of the time of publication, IRS guidelines state that married couples filing a joint tax return with an AGI of $179,000 or more cannot contribute to a Roth IRA.
The term "spousal IRA" may cause some confusion with couples who are searching for effective ways to save for retirement. For instance, a spousal IRA is really just an IRA. It is not a separate IRA available exclusively to non-working spouses. It is important to remember this as you consider your options. Also, contributing to a spousal IRA doesn't necessarily require you to have zero taxable compensation for the year. In fact, the spousal IRA option is also available to spouses who work and earn an income, but earn less than their spouses.
- father with two children on lap image by Pavel Losevsky from Fotolia.com