If you are part of a married couple relying on a single income, leveraging a less widely known retirement strategy could significantly enhance your financial future. A spousal individual retirement account (IRA), an option available for a non-working spouse, can be a vital tool for building wealth. As April 15, the tax filing deadline for 2024, approaches, now is the ideal time to consider contributions.
What is a Spousal IRA?
The spousal IRA allows couples to maximize their contributions with just one income source. This means both spouses can establish either a traditional or Roth IRA. For the current tax year, contributions must be completed by the April 15 deadline, enabling each spouse to potentially contribute to their own IRA, thereby amplifying retirement savings.
The Benefits of Spousal IRAs
Tim Donovan, a knowledgeable certified financial planner, emphasizes that “spousal IRAs are revolutionary for married couples eager to grow their retirement savings while also managing tax obligations.” This strategy permits the couple to collectively benefit from a substantial contribution limit.
For 2024, individuals can contribute up to $7,000, and those aged 50 or older can add an additional $1,000 as a catch-up provision. Older couples can therefore save up to $8,000 each within the confines of these accounts before the April filing date.
Eligibility Considerations
To qualify for this strategy, couples must file their taxes jointly, and their combined contributions cannot exceed the taxable compensation reported on their return. It remains advantageous even if one spouse is unemployed but has insufficient earnings to invest in an IRA independently.
Roth IRAs, funded with after-tax dollars, offer significant growth potential tax-free, albeit with associated income limits. Alternatively, traditional IRAs can yield upfront tax benefits, contingent upon income levels and participation in workplace retirement plans.
Empowering Non-Working Spouses
Another essential advantage of spousal IRAs is the opportunity for non-earning spouses to accumulate retirement savings. As Michelle Petrowski, a financial advisor and founder of a Phoenix-based firm, points out, this system not only supports the family’s primary financial steward who may not be employed outside the home but also recognizes their contributions effectively.
In the event of a divorce, having individual retirement accounts enhances the simplification of asset division. Petrowski highlights that establishing a spousal IRA serves to validate the importance of a partner’s non-compensated contributions to the household, thus facilitating discussions regarding financial equity.
In summary, implementing a spousal IRA strategy offers a significant pathway for married couples aiming to bolster their retirement savings. With thoughtful planning and adherence to the deadlines, couples can leverage existing income fully to secure a more stable financial future.
