No Earned Income? Here's How Some May Still Contribute to an IRA.

In the last year and a half, many have stopped working due to the pandemic. Some families have had one spouse stay home with the kids due to closures and restrictions. Does that mean the non-working spouse can't save for retirement?


The rule of thumb is that in order to contribute to an IRA, the owner of the IRA must have earned income up to the amount of the contribution. However, if you are married and not working, there is still a way to contribute. If this is your case, you may be leaving tax-deductible money on the table that could be going towards your retirement.


The exception


The IRS rule that allows you to contribute to a retirement account even though you aren't working is known as a spousal IRA, which is really just a traditional or Roth IRA in the non-working spouse's name. The working spouse's earned income can count for the non-working spouse's IRA contribution.


Understanding this exception can mean hundreds of thousands of dollars for a couple's future retirement.


The spousal traditional IRA


An individual can contribute up to $6,000 for 2021, or $7,000 if they are 50 and older. So for a married couple filing jointly, they can contribute a maximum of $12,000 or $14,000, respectively. This is the case whether both spouses are working or just one. The working spouse must have earned income at least up to the amount of the total contributions.


If the spouse that is not working has worked in the past and already opened an IRA, then they can simply just start contributing to their current account. If not, then they can open a new one in their own name.


If the working spouse has a retirement plan offered through their employer, like a 401k or 403b for instance, there are income limits for how much of the contribution is tax-deductible. Income limits for a traditional IRA for a couple married filing jointly is:


  1. If the modified AGI (MAGI) is $198,000 or less, then the whole contribution is deductible.

  2. If the MAGI is more than 198,000 but less than $208,000, then it will be partially deductible.

  3. If the MAGI is $208,000 or more then there is no deduction.

If the working spouse does not have a retirement plan offered through work, then there is no income limit to the deduction for spousal IRA.


Tax savings and growth of a spousal traditional IRA


For those under the income thresholds, the spousal IRA contribution is a very powerful tool. Doing so saves on taxes owed, while also adding up for your future retirement.


For instance, say you contributed $6,000 a year towards a spousal IRA for 25 years with an average rate of return at 7%. That account would be worth $412,059. That's an amazing addition to your family's savings along with what the working spouse will have saved.


Depending on a family's tax situation, and if they are below the income thresholds they could be saving hundreds in taxes each of those years they contribute to an IRA. But even if they don't get the deduction, they can still contribute and get the tax-deferred growth within the account.


The spousal Roth IRA


The spousal Roth IRA option is great too. While there is no tax-deduction for the contributions, all the growth and distributions will be 100% tax free after the age of 59 1/2 and once the account has been opened for five years.


There are however income limits for being able to contribute to a Roth IRA. Currently, if your MAGI for a married couple filing jointly is:


  1. less than $198,000 you can make a full contribution.

  2. $198,000 and under $208,000 then you can make a partial contribution.

  3. $208,000 or more than you can not contribute.

Understanding all your options and capitalizing on them is the best way to help your future self. The Roth IRA is very appealing for those who don't want to pay tax in the future on their distributions.


Both options are great, and can provide a great boost to a family's retirement. Just because a spouse may not work doesn't mean they can't save for retirement. If you want to get started with an IRA, contact us to set up a time to review your specific situation. We can help get a plan set in motion for you.


Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual. Our investment philosophy takes a forward-looking approach that may not transpire. The economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Investing involves risk and you may lose your principal.







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