Individual retirement arrangements offer long-term tax benefits that motivate people to save and invest part of their incomes for their later years. The rules allow you to contribute some of your taxable income to your spouse’s IRA. Your IRA may be rolled over to your spouse’s IRA, but you have to die first. Another cheery alternative: a judge can transfer IRA assets from one spouse to the other as part of a divorce judgment.
Inheriting an IRA
If you've named your spouse as your beneficiary, your IRA can be rolled into your spouse’s IRA upon your death, but not before. Your spouse can delay taking distributions from the inherited traditional or Roth IRA until he reaches age 70 1/2. If you leave behind a Roth IRA, your spouse won’t have to shell out taxes on distributions. Money and property you leave to your spouse, including your IRA, escapes estate tax, at least until your spouse dies. You can have a court grant guardianship of your IRA to your spouse if you are dying or are no longer competent to manage your affairs, but this is not a rollover.
Contributions vs. Rollovers
As of 2014, tax laws limit the amount of taxable income you can contribute to an IRA to $5,500, or $6,500 if you've reached age 50. A traditional IRA allows you to deduct your contributions. Alternatively, you can contribute after-tax money to a Roth IRA and later take out the money tax-free, as long as you follow the rules. Rollovers are transfers of cash or property among employer qualified plans and IRAs belonging to the same individual. Eligible rollovers do not create a current tax bill unless you convert a traditional account to a Roth account.
Spousal IRA Limits
You might be able to contribute up to the $5,500 or $6,500 limit even if your personal taxable income is less than the IRA limit. To work this magic, you must file a joint return and figure your family income after deducting any contributions your spouse makes to his IRA. However, if you or your spouse belongs to an employee retirement plan, the Internal Revenue Service curbs the tax deductions on your traditional IRA contributions when your joint income exceeds an annual limit that changes over time. Income limits also apply to Roth IRA contributions.
Divorce and IRAs
If you divorce or separate from your spouse, you can no longer deduct contributions to your spouse’s IRA as of the year the split occurred. If your divorcing spouse receives a court order, you might have to transfer your IRA to your spouse. You can do this via a direct transfer to your spouse’s IRA or by retitling your IRA in your spouse’s name. In either case, the transfer is tax-free. If the court judge lets you keep some of your IRA assets, you can roll that amount into another IRA and retitle the original IRA in your spouse’s name.
Based in Greenville SC, Eric Bank has been writing business-related articles since 1985. He holds an M.B.A. from New York University and an M.S. in finance from DePaul University. You can see samples of his work at ericbank.com.