Saving enough for retirement may be difficult if only one spouse in a married couple is earning compensation. In general, an IRA contribution is allowed only if a taxpayer earns compensation. However, there’s an exception involving a “spousal” IRA.
The exception for a "spousal” IRA is available for a couple that files a joint tax return and a spouse is out of work, stays home to care for children, elderly parents, or for other additional reasons.
For 2023, the amount that an eligible married couple can contribute to an IRA for a nonworking spouse is $6,500, which is the same limit that applies for the working spouse.
Benefits of an IRA
As you may know, IRAs offer two advantages for taxpayers who make contributions to them:
- Contributions of up to $6,500 a year to a traditional IRA may be tax deductible, and
- The earnings on funds within the IRA aren’t taxed until withdrawn.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, future distributions are tax-free.)
As long as a married couple has a combined earned income of at least $13,000, $6,500 can be contributed to an IRA for each spouse, for a total of $13,000. (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 $13,000 limit.)
Higher contribution if 50 or older
In addition, individuals who are age 50 or older can make “catch-up” contributions to an IRA or Roth IRA in the amount of $1,000. Therefore, for 2023, a taxpayer and his or her spouse, who have both reached age 50 by the end of the year can each make a deductible contribution to an IRA of up to $7,500, for a combined deductible limit of $15,000.
However, there are some limitations. If, in 2023, the working spouse is an active participant in one of several types of retirement plans, a deductible contribution of up to $6,500 (or $7,500 for a spouse who will be 50 by the end of the year) can be made to the IRA of the nonparticipant spouse only if the couple’s AGI doesn’t exceed a certain threshold. This limit is phased out for AGI between $218,000 and $228,000.
These rules and eligibility can be complex. If you want to discuss retirement planning, or would like more information on IRA’s, please contact your Rudler, PSC advisor at 859-331-1717.
RUDLER, PSC CPAs and Business Advisors
This week's Rudler Review is presented by Joshua Myers, Staff Accountant and Audrey Goetz, CPA, CVA.
If you would like to discuss your particular situation, contact Josh or Audrey at 859-331-1717.
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