What is a Spousal IRA? Definition and How to Open One - NerdWallet (2024)

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What is a Spousal IRA? Definition and How to Open One - NerdWallet? ›

There's no special "spousal" account type. Spousal IRAs are just a typical IRA, but used by a person who's married. That is, each spouse can use traditional or Roth IRAs, or both. The key is that the working spouse must earn at least as much money as is contributed to all of the couple's IRAs.

A spousal IRA is a type of tax-advantaged retirement account that allows a working spouse to contribute to a non-working spouse's savings. To qualify for a spousal IRA, you and your spouse must file your taxes jointly and adhere to normal IRA contribution limits.

Explanation: A spousal IRA allows a spouse without earned income to contribute to an Individual Retirement Account (IRA). This means that Option A, which states that a spouse may be eligible to contribute to an IRA even if they have no income of their own, is correct.

Money is available:

At any time, but a penalty will apply to withdrawals made before you reach age 59½.

A spousal IRA provides a way to boost your retirement savings as a couple. Plus the spouse gets access to the same wide variety of investment choices, ranging from mutual funds and exchange-traded funds (ETFs) to individual stocks and bonds.

This means that spouses who don't work for pay can contribute to a spousal IRA if they file taxes jointly with a spouse who does. If each spouse has an IRA, both can make the maximum annual contribution limit of up to $7,000 in 2024 ($8,000 if age 50 or older).

If you are married and your spouse is not named as your sole primary beneficiary, spousal consent is required in the following states of residence, which are community property states: Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas and Washington.

A number of states consider property acquired during marriage to be community or marital property. If that's the case in your state of residence, the IRA owner must get spousal consent if they want to name someone other than their spouse as the death beneficiary of their IRA, Burrell says.

In your divorce decree, you can specify where the money is to be sent. Your IRA custodian can then handle the transfer of money to your spouse's IRA. At that point, they can do what they like with the money whether that means rolling it into a new IRA or withdrawing it.

What is the phase out for the spousal IRA in 2024? ›

For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the phase-out range is increased to between $230,000 and $240,000, up from between $218,000 and $228,000.

If you are in the process of getting divorced, IRA assets can be divided by what is called a “transfer incident to divorce." The division must be clearly categorized as a transfer incident in the divorce agreement submitted to a judge or mediator. Not doing so can cause complications, such as tax consequences.

Generally, early withdrawal from an Individual Retirement Account (IRA) prior to age 59½ is subject to being included in gross income plus a 10 percent additional tax penalty. There are exceptions to the 10 percent penalty, such as using IRA funds to pay your medical insurance premium after a job loss.

The simplest way to do that is through a direct trustee-to-trustee transfer from one account to the other or between one IRA custodian and another. You also could complete an indirect IRA-to-IRA rollover, where you take a distribution from the inherited assets and then roll those assets into your own existing IRA.

Once a spousal IRA is created, it is treated as though it always were the surviving spouse's IRA. No reference is made again to the previous IRA, and it is not considered an inherited IRA. The surviving spouse names new beneficiaries. The RMD schedule is determined solely by the surviving spouse's age.

A spouse generally isn't entitled to an IRA if they aren't named as the beneficiary. Make sure you change your beneficiary after a divorce to ensure your ex doesn't inherit your IRA. The owner of an IRA must get their spouse's approval to name another beneficiary in community property states.

Spousal IRAs are the same as Roth or traditional IRAs but are designed for married couples. Couples must file joint returns to contribute to a spousal IRA. If you are age 50 or older, you may contribute an extra $1,000 catch-up contribution.

Once a spousal IRA is created, it is treated as though it always were the surviving spouse's IRA. No reference is made again to the previous IRA, and it is not considered an inherited IRA. The surviving spouse names new beneficiaries. The RMD schedule is determined solely by the surviving spouse's age.

Retirement accounts such as 401(k)s or IRAs are often considered marital property and therefore are subject to division in a divorce.