When Is The Right Time To Invest In A Spousal IRA?

You may have never come across the concept of a spousal IRA before. The account opportunity isn't high on the priority list for many savers, in large part because it's not a well-known option. Moreover, you need to have a spouse in order to utilize the spousal IRA in your collective retirement plans. Anyone who isn't married won't be considering this retirement savings vehicle, keeping it contained to just a subset of the population.

It might also seem like a special kind of account that remains off limits unless you meet certain requirements. The truth is a lot more pedestrian, however. A spousal IRA is a standard retirement account option that any married person can open if they choose to. This said, not everyone's situation will correspond with the optimal use of a spousal IRA, and some additional fiscal choices you can make as a married couple can affect eligibility, too.

For some families, this approach will make a lot of sense, whereas others won't want or need this additional retirement funding choice. It might be tempting to think of opening a spousal IRA for your loved one simply because you can after tying the knot, but there actually is a "right time" to consider this avenue. 

A spousal IRA is a quality retirement saving option that helps keep non-working spouses and those earning substantially less than their partner on track for retirement. Everyone should be thinking about how they'll fund their golden years, not just those who act as breadwinners for a household. As such, a spousal IRA is an account type that overtly benefits families who exhibit a single income or two salaries with significant variance between them in their financial picture.

Funding your own IRA or 401(k) (perhaps using either a traditional or Roth IRA, or maybe even both) is generally going to be the simplest approach to retirement planning. Spouses who are both working won't really see any upside in the minutiae of switching account designations. However, if one spouse leaves the workforce or takes on drastically curtailed responsibilities or hours, a change might be immensely beneficial. Without a doubt the most common instance of this change happening is with the birth of a child. With children in the mix, many families will explore new options for making their lifestyle work, including reduced workloads or a total exit for one spouse.

A spousal IRA allows that individual to continue enjoying contribution opportunities to their retirement accounts, even if their taxable income drops to zero (thus eliminating their ability to contribute to a standard IRA of either tax-treatment type). This option leaves the door open for contributions to flow into the non-working spouse's account, doubling a family's savings ability and maintaining that spouse's retirement savings goals. (Read about the amount of people behind in their retirement savings.)

First of all, in order to take advantage of a spousal IRA you must file your taxes jointly. This may not be an issue, but some couples will want to separate their reporting to the IRS because of quirky financial circumstances or other potentially beneficial reasons. Similarly, anyone married to a foreign, non-resident individual (who doesn't have a Social Security number) won't be able to utilize this feature. (Learn about Social Security rules that can increase your monthly benefit.)

Contribution limits, meanwhile, are amplified, but they still fall under the provision that taxable income must be higher than the total contribution. In 2024, the maximum IRA contribution for those under 50 years ago is $7,000, meaning a couple could invest $14,000 total in their IRA accounts ($7,000 in the primary earner's own account and another $7,000 in the spousal IRA). This allows the primary earner to "cover" the income requirement for their partner: So long as that person earns at least $14,000, their partner doesn't have to earn anything to retain contribution eligibility.

Another key feature of the spousal IRA to keep in mind is that the spouse who contributes to the account isn't the owner of the account or its funding. Their partner is the named owner, and in the event of a divorce, is likely to be able to keep the funds rather than share or relinquish them. Everyone's circumstances are different, but if your marriage is somewhat rocky, you might not want to take responsibility for funding an account for someone who might not factor into your long-term life plans — it's not a nice thing to think about, but divorce is something that does happen with stunning regularity, unfortunately. (See how getting divorced affects your taxes.)