Nothing Says Love on Valentine's Day Like a Spousal IRA

Nothing Says Love on Valentine's Day Like a Spousal IRA

February 11, 2024

Looking for ways to save "I love you" on Valentine's Day? Then you may want to consider opening a spousal individual retirement account (IRA). This gift says, "Let's grow old together comfortably," and shows your partner that you care about their financial wellness. Beyond that, a spousal IRA offers the following advantages. 

1. Investment Opportunities Regardless of Income 

Generally, you cannot invest in 401(k)s or IRAs unless you have earned income. A spousal IRA is an exception, however. As long as you are married and file taxes jointly, low-income and non-working spouses may invest in a spousal IRA.1

This strategy may be ideal for families where one spouse works and the other manages the home. It is also worth considering by families where one spouse has a low income due to working part-time, starting a new business or for any other reason. 

2. Increased Tax Deduction

When you open a traditional spousal IRA, you lower your taxable income by the amount contributed to the IRA unless you are subject to income limits. As of 2023, you and your spouse may contribute up to $6,500 in an IRA, bringing your potential tax deduction to $13,000. If you are 50 or older, you may contribute up to $7,500 per year, potentially shaving up to $15,000 off your annual taxable income. 

Note that the deductibility of IRA contributions varies based on your income level and whether or not a retirement plan at work covers you. As of 2023, if a retirement plan at work covers you, you may only claim a full deduction if your adjusted gross income (AGI) is $116,000 or less for a married couple filing jointly. You get a partial deduction if your income is up to $136,000 but the deduction phases out completely for couples with AGIs over that amount.2  

3. Flexible IRA Options

A traditional IRA may not be the appropriate choice for everyone. In some cases, you may prefer the tax benefits of a Roth IRA. While a traditional IRA provides tax savings now, a Roth IRA saves the tax savings for retirement. 

To explain, when you contribute to a traditional IRA, you do not pay tax on the contributions, but you have to report the distributions as income during retirement. A Roth IRA works in reverse. You fund it with after-tax income, but the distributions are tax-free when taken during retirement. With a spousal IRA, you may choose the appropriate option for you and your spouse.

4. Control Over Investment Decisions

You and your spouse may be comfortable sharing a retirement account in your name, and if you are not maxing out your contributions, you may not need to contribute to a spousal IRA from a tax perspective. However, when you open a spousal IRA, you give your spouse control over their investment decisions. They get to decide asset allocation and beneficiaries. Even if you make all your financial decisions together, this autonomy may still empower your spouse. 

5. A Well-Funded Retirement

The sooner you start preparing for retirement, the better. By giving your spouse a spousal IRA for Valentine's Day, you help prepare both of you for retirement. Then, look forward to your golden years together, knowing that you are preparing financially for that time. 

 

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal.  Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.

The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

This article was prepared by WriterAccess.

LPL Tracking # 1-05351239.

Footnotes

1 How Married Couples Can Save For Retirement With A Spousal IRA, Forbes,
https://www.forbes.com/advisor/retirement/spousal-ira/

2 2023 IRA Deduction Limits - Effect of Modified AGI on Deduction if You Are Covered by a Retirement Plan at Work, Internal Revenue Service,
https://www.irs.gov/retirement-plans/2023-ira-deduction-limits-effect-of-modified-agi-on-deduction-if-you-are-covered-by-a-retirement-plan-at-work