What are the tax rules for “spousal” individual retirement accounts (IRAs)?
Under these rules, the amount that a married couple can contribute to an IRA for a nonworking spouse in 2015 is $5,500: the same limit that applies for the working spouse. As you may be aware, IRAs offer two types of benefits for taxpayers who make contributions to them. These benefits can help a family through the spousal IRA contribution rules.
Making Spousal Contributions to IRA
First, contributions of up to $5,500 a year to an IRA may be tax deductible. And, second, the earnings on funds within the IRA are not taxed until withdrawn. (Alternatively, you may make contributions to a Roth IRA. There’s no deduction for Roth IRA contributions, but, if certain requirements are met, distributions are entirely tax-free.)
How to Make Spousal IRA Contribution?
In general, an IRA contribution is allowed only if the taxpayer has compensation above certain limits. “Spousal” IRAs are an exception. That is, they allow a contribution to be made for a nonworking spouse. As long as the couple together has at least $11,000 of earned income, $5,500 can be contributed to an IRA for each, for a total of $11,000. (The contributions for both spouses can be made to either a regular IRA or a Roth IRA, or split between them, as long as the combined contributions don’t exceed the $11,000 limit.)
Catch-up Contributions for Spousal IRA
In addition, individuals who are 50 or older can make “catch-up” contributions to an IRA or Roth IRA in the amount of $1,000. Thus, in 2015, for a taxpayer and his spouse, both of whom will have reached age 50 by the end of the year, the combined limit of the deductible contributions to an IRA for each spouse is $6,500, for a combined deductible limit of $13,000.
What is the Maximum Catch-up Contribution to Spousal IRA?
There is one catch, however. If, in 2015, the working spouse is an active participant in either of several types of retirement plans, a deductible contribution of up to $5,500 (or $6,500 for a spouse who will be 50 by the end of the year) can be made to the IRA of the non-participant spouse only if the couple’s AGI doesn’t exceed $181,000. This limit is phased out for AGI between $181,000 and $191,000. Even with these limits, spousal IRA can be an important tool that a family can use to build retirement savings.