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Spousal IRAs (MS Word)

Spousal IRAs (.pdf)

 

Spousal IRAs

Dear Reader:

I am writing to inform you of increased tax benefits which may be available to you under the rules for “spousal” individual retirement accounts (IRAs). Under these rules, the amount that a married couple can contribute to an IRA for a nonworking spouse in 2009 is $5,000: the same limit that applies for the working spouse.

As you may be aware, IRAs offer two types of benefits for taxpayers who make contributions to them. First, contributions of up to $5,000 a year to an IRA may be tax deductible. And, second, the earnings on funds within the IRA are not taxed until withdrawn. (Alternatively, you may make contributions to a Roth IRA. There's no deduction for Roth IRA contributions, but, if certain requirements are met, distributions are entirely tax-free.)

In general, an IRA contribution is allowed only if the taxpayer has compensation. “Spousal” IRAs are an exception. That is, they allow a contribution to be made for a nonworking spouse. As long as the couple together has at least $10,000 of earned income, $5,000 can be contributed to an IRA for each, for a total of $10,000. (The contributions for both spouses can be made to either a regular IRA or a Roth IRA, or split between them, as long as the combined contributions don't exceed the $10,000 limit.)

In addition, individuals who are 50 or older can make “catch-up” contributions to an IRA or Roth IRA in the amount of $1,000. Thus, in 2009, for a taxpayer and his spouse, both of whom will have reached age 50 by the end of the year, the combined limit of the deductible contributions to an IRA for each spouse is $6,000, for a combined deductible limit of $12,000.

There is one catch, however. If, in 2009, the working spouse is an active participant in either of several types of retirement plans, a deductible contribution of up to $5,000 (or $6,000 for a spouse who will be 50 by the end of the year) can be made to the IRA of the non-participant spouse only if the couple's AGI doesn't exceed $159,000. This limit is phased out for AGI between $166,000 and $176,000.

Please give us a call if you would like to discuss the above or if you would like to discuss IRAs or your retirement planning in general.