Individual retirement accounts may be pre- or post-tax. Pre-tax IRAs are known as traditional IRAs. With these accounts, the money you use for contributions is deposited before you pay taxes on it; you pay the tax when you withdraw the money from the account. Usually, these accounts can only be in one owner's name, meaning you cannot jointly own them. This means that IRA owners with spouses have to use specific techniques to help their spouse access retirement monies.
In general, it is not possible to have a traditional IRA that has your name plus the name of your spouse. The reason is that whoever owns the IRA is supposed to use the contributions for his own retirement, not the retirement of someone else. However, there are two ways you can involve a spouse in a pre-tax IRA. You can name your spouse as a beneficiary or start a spousal IRA.
Spouse as Beneficiary
When you name your spouse as a beneficiary, he cannot contribute to the IRA. However, if you pass away, then the money in the IRA will go to your spouse. Once your spouse inherits the IRA, he can roll the funds into his own IRA. Alternately, if you've named other beneficiaries, your spouse can opt to disclaim the funds so they go to the other beneficiaries you've named. This can be advantageous for your spouse if he is fairly secure financially and wants the IRA funds to go to your children.
With a spousal IRA, you create an IRA for a non-working spouse in his name. This makes sense if your spouse is unable to work or if your spouse stays home to provide child care or has medical issues or disabilities. Once you've established the spousal IRA, you can contribute up to the current maximum contribution allowed on behalf of your spouse. At the time of publication, the maximum yearly contribution for a traditional or pre-tax IRA was $5,000 for those age 50 and younger or $6,000 for those older than 50. To be eligible to create a spousal IRA, you must be working, you and your spouse must file your taxes jointly and your spouse can't be older than age 70 1/2, the age at which you must start taking money from the IRA. Your spouse can earn money, but not more than the maximum contribution allowed per year. If you don't have an employee-sponsored retirement plan, the contributions you make may be deductible.
The inability to have multiple owners on a pre-tax IRA does not mean you cannot help your spouse prepare for her retirement years. Usually, it makes more sense to create a spousal IRA if you are younger because you'll have some time to contribute to the IRA. However, whether you choose to name your spouse as a beneficiary to your own IRA or create a spousal IRA for her depends on your personal preferences and financial situation.
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