If you are a homemaker who earns little or no income, you may still be able to open what is commonly referred to as a “spousal IRA” if you satisfy certain criteria identified by the Internal Revenue Service. A spousal IRA can be either a traditional IRA or a Roth IRA, and draws its name from the individual who funds your retirement account, your spouse.
In order for your spouse to be able to deposit money in your spousal IRA, you must meet all of the following criteria in the tax year for which a contribution is being made: You must be married to your spouse as of December 31, you need to file a joint federal tax return, your spouse must report taxable earned income, and your spouse’s taxable earned income must exceed the amount of the contribution.
If you decide to establish a traditional IRA as a homemaker, your age must also be less than 70 ½ throughout the year for which a contribution is made.
There are several advantages to opening a traditional IRA as your spousal retirement account. For instance, any contribution your spouse makes to your account may be fully or partially deductible if your combined modified adjusted gross income, called MAGI for short, is below certain thresholds identified by the IRS. If your MAGI is equal to or below $173,000 in the current tax year, the full amount that your spouse deposits in your traditional IRA is deductible. If your MAGI is more than $173,000, but less than $183,000, your spouse’s contribution is partially deductible. Even though your spouse can still make the maximum permissible contribution to your IRA if your MAGI is $183,000 or more, no portion of the deposit can be deducted on your federal tax return.
You can begin taking penalty-free withdrawals from your traditional IRA after you reach age 59 ½ and your account has been open for at least five years. Because contributions to a traditional IRA are made with pre-tax dollars, the IRS will tax your withdrawals as ordinary income.
If you choose to open a Roth IRA instead, the IRS may limit or eliminate your spouse’s ability to contribute to your account based on your MAGI. If your MAGI is less than $173,000, your spouse may make the maximum permissible contribution for the current tax year. If your MAGI is $183,000 or more, your spouse cannot make a contribution to your IRA. Your spouse may make a partial contribution to your Roth IRA if your MAGI is between $173,000 and $183,000.
Since contributions to your Roth IRA are made with post-tax money, they are not deductible. The IRS does not tax the withdrawals you take from your Roth IRA, as long as you are at least 59 ½ and your account is a minimum of five years old when you take them.
Regardless of which type of IRA you decide to open, your spouse can currently contribute up to $5,000 per year if you are under 50 years old. If you are 50 or older, your spouse may put up to $6,000 into your spousal IRA.
Deborah Barlowe began writing professionally in 2010. With experience in earning securities and insurance licenses and having owned a successful business, her articles have focused predominantly on finance and entrepreneurship. Barlowe holds a bachelor’s degree in hotel administration from Cornell University.