Generally a person needs to have earned compensation in order to qualify for IRA contributions. An exception to this is in the case of a married couple filing jointly when only one partner is working. IRS allows an employed spouse to make contributions to her partner's retirement account when her partner earns little or no income.
This type of IRA in which the working spouse contributes to his/her partner's retirement account is referred to as a spousal IRA. The only difference between a regular IRA and a spousal IRA is that the working partner is making the contributions on behalf of her partner. The IRA is still owned and operated by the stay-at-home spouse.
Eligibility Requirement
- Spousal IRA is permitted for married couple filing jointly
- The working spouse should have compensation or earned income of at least the total amount that he contributes to his and his partner's IRAs.
- To contribute to a Roth IRA, the MAGI or Modified Adjusted Gross Income should be less than the limits set by IRS. Couples with a MAGI of $166,000 or less are eligible to contribute the full amount to their IRAs. Eligibility to contribute to a Roth IRA for 2009 is phased out between an AGI of $166,000 and $176,000 for couples filing jointly. To read more about contribution limits, read Contributions to Individual Retirement Accounts.
Contribution Limit
As per the IRS website, when a married couple files jointly and the taxable compensation of one spouse is less than that of his spouse, the most that he can contribute is the smaller of the following amounts :
- $5000 for 2009 ($6000 if he is 50 or older).
- The total compensation of both the spouses for the year reduced by the amount the spouse contributes to her IRA.
The maximum contribution that a couple can make to their IRAs is $10,000 for the year if the working partner earns at least $10,000 in that year. When one of the partners is 50 or older the contribution limit is increased to $11,000 and if both the partners are aged 50 or older, the combined contribution limit is $12,000.
Ability to Deduct Spousal Contributions to Traditional IRAs
Unlike a Roth IRA there is no income limit for contributing to a traditional IRA. However a couple with a MAGI of $176,000 and above for tax year 2009 are not allowed to deduct their contributions to a traditional IRA.
For a spouse who does not participate in an employer-sponsored plan, contributions to a Traditional IRA are:
- Fully deductible for married couples with MAGI of $166,000 or less for tax year 2009.
- Partially deductible for married couples with a MAGI of more than $166,000 and less than $176,000 for tax year 2009.
Stay-at-home partners can put their finances at risk when they decide to leave their careers to take care of their children. With no savings or retirement planning, they are often at the mercy of their working partners. A spousal IRA can give a certain amount of financial security and peace of mind for the non-working partner, who are often unrewarded for their work.
