A lesser-known retirement savings strategy for married couples is the spousal IRA, which allows a non-working spouse to contribute to a separate Roth or traditional IRA. These accounts can provide a current-year tax break and boost retirement savings specifically for nonearning spouses, such as stay-at-home parents. With around 18% of parents not working outside the home, this strategy can be particularly beneficial for many families. Experts recommend taking advantage of the spousal IRA to help lower tax bills or increase refunds for those who may not have earned income.
Married couples filing jointly have until the federal tax deadline, usually April 15, to make IRA contributions for both spouses, as long as there is sufficient earned income for both. Contributions to traditional pretax spousal IRAs can provide a tax break for the 2023 tax year, depending on factors such as income and workplace retirement plan participation. While there are income phaseouts for IRA deductibility and Roth IRA contributions, it’s common for individuals to wait until March or April to make deposits for the previous year. The annual IRA contribution limit for 2023 is $6,500, or $7,500 for savers age 50 and older, increasing to $7,000 for 2024 with an additional $1,000 for those 50 and up.
While spousal IRA contributions can be beneficial for some couples, there are other factors to consider before making deposits. Some couples may need extra cash for living expenses or short-term goals, which could be a higher priority than retirement savings. Additionally, contributing too much to pretax retirement accounts could lead to a future “tax problem,” especially when considering future required minimum distributions and potential impacts on Medicare premiums. The decision to make spousal IRA contributions is a complex one that depends on individual circumstances and financial goals.
Financial experts recommend considering spousal IRA contributions as a way to maximize retirement savings and potentially lower tax bills for married couples with a non-earning spouse. It’s important for nonearning spouses, especially stay-at-home parents, to take advantage of this strategy to secure their financial future and increase their retirement savings. Making contributions to spousal IRAs can provide valuable tax benefits while helping to build a nest egg for retirement. It’s a strategy worth considering for couples looking to optimize their tax situation and enhance their retirement savings.
In conclusion, the spousal IRA is a valuable tool for married couples to consider when planning for retirement and managing their tax situation. With potential tax benefits and the opportunity to boost retirement savings, spousal IRA contributions can play a significant role in securing financial stability for nonearning spouses. While there are factors to consider before making contributions, such as short-term financial goals and potential tax implications in the future, the spousal IRA remains a useful strategy for many couples. By taking advantage of this lesser-known retirement savings option, couples can work towards a more secure financial future and potentially lower their tax bills.
