Retirement planning can feel like a solo mission, but for couples, spousal IRAs offer a unique way to team up and strengthen their financial future. Even if one spouse isn’t working, a spousal IRA allows both partners to build their retirement savings together.
Let’s break down what spousal IRAs are, how they work, and how they can supercharge your retirement planning.
What is a Spousal IRA?
A spousal IRA (sometimes called the K. Bailey Hutchison Spousal IRA) allows a working spouse to contribute to an IRA in the name of a non-working spouse. This means even if one partner isn’t earning income — whether due to raising children, caring for family, or other reasons — they can still build a retirement nest egg.
Example of Growth Potential:If you contribute $12,000 per year to a spousal IRA for 30 years with a 5% return, it could grow to over $800,000 thanks to the power of compound interest.
How Spousal IRAs Work
Eligibility:
You must be married and file taxes jointly.
Contributions are limited by your combined earned income for the year.
Contribution Limits:
For 2024 and 2025, each spouse can contribute up to:
$7,000 per year (if under 50).
$8,000 per year (if 50 or older).
Combined contributions cannot exceed the total income earned by both spouses.
Separate Accounts:
A spousal IRA is not a joint account. Each IRA is individually owned by each spouse, maintaining financial independence while working toward shared goals.
Traditional vs. Roth Spousal IRAs
When opening a spousal IRA, you have a choice between a Traditional IRA and a Roth IRA. The right option depends on your current financial situation and future goals.
Traditional IRA:
Tax Deduction Now: Contributions may reduce your current taxable income.
Taxes Later: Withdrawals in retirement are taxed as income.
Roth IRA:
Pay Taxes Now: Contributions are made with after-tax income.
Tax-Free Withdrawals: Earnings and withdrawals in retirement are tax-free.
Choosing Between the Two:
If you expect to be in a higher tax bracket in retirement, a Roth IRA may be better.
If you need a tax break now, a Traditional IRA might make more sense.
Income Limits for Roth IRAs
Roth IRAs have income restrictions:
In 2024, if your joint income is:
$230,000 or less – Full contribution allowed.
$230,000 to $240,000 – Contributions phase out.
Above $240,000 – You cannot contribute directly to a Roth IRA.
Backdoor Roth Strategy:If you exceed Roth income limits, consider a backdoor Roth IRA. This involves contributing to a Traditional IRA and then converting it to a Roth IRA. Due to potential tax implications, it’s wise to consult a financial advisor before using this strategy.
Benefits of Spousal IRAs
Boost Retirement Savings:Allows couples to contribute to retirement accounts for both spouses, even if one doesn’t work.
Catch-Up Contributions:Ideal for couples where one spouse took time off work, helping to close any savings gaps.
Flexibility:There’s no age limit for contributing, as long as one spouse has earned income.
Financial Independence:Though contributions come from the working spouse’s income, the IRA belongs to the non-working spouse, providing control over investments and withdrawals.
Top 3 Takeaways About Spousal IRAs
Non-Working Spouses Can Save for Retirement:Even if one partner isn’t earning income, they can still build a solid retirement fund through a spousal IRA.
Choose Between Traditional and Roth Wisely:Consider your current income, future tax bracket, and risk tolerance when deciding between a Traditional or Roth IRA.
Seek Professional Advice:Retirement planning can be complex. A financial advisor can help tailor strategies to your unique situation and goals.
Plan for Retirement as a Team
Spousal IRAs are a powerful tool for couples to grow their retirement savings together. Whether you’re early in your career or nearing retirement, this strategy can provide flexibility, security, and a sense of shared financial ownership.
Start planning today and take advantage of this secret weapon to secure a brighter future for both you and your partner!
Final Thoughts
Retirement planning isn’t a “set it and forget it” process. Being aware of sequence of returns risk and using these five strategies can help ensure your nest egg lasts as long as you do.
By staying engaged and adapting your plan, you can build a retirement that’s secure, flexible, and tailored to your goals.
✅ Talk to John White
Are you ready to get your financial house in order? Schedule a call with John White today! With over 30 years of experience helping families navigate the complexities of financial planning, John brings a wealth of knowledge and genuine care to every consultation.
At Financial Guideposts, we are passionate about guiding you to where you need to be to ensure you and your family live your best, most stress-free life. Our mission is to keep your family financially protected, no matter what happens. Let us help you achieve peace of mind and financial security. Schedule your call with John White now and take the first step toward a brighter financial future.
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