When it comes to planning for retirement, many married couples often focus on individual retirement account (IRA) contributions based on earned income. However, there is a lesser-known strategy that can help lower your tax bill or boost your refund: the spousal IRA. In single-income households where one spouse is not working, a spousal IRA can provide significant benefits and opportunities for increasing retirement savings.
Understanding Spousal IRAs
A spousal IRA is a separate Roth or traditional IRA specifically designed for the non-working spouse. Despite being an effective retirement savings tool, spousal IRAs are often overlooked, according to certified financial planners. This strategy allows nonearning spouses, particularly women who make up a significant portion of stay-at-home parents, to contribute to an IRA even if they do not have earned income.
For married couples who file jointly, the deadline for making IRA contributions for each spouse is typically April 15. Traditional pretax spousal IRA contributions can provide a tax break for the contributing spouse, depending on their income and participation in a workplace retirement plan. By strategically timing and planning IRA deposits, couples can optimize their tax benefits and potentially increase their retirement savings.
Considerations Before Contributing
While spousal IRAs can be a valuable tool for retirement planning, there are factors to consider before making contributions. Some couples may prioritize other financial goals or short-term expenses, such as saving for a wedding or covering living expenses. Additionally, accumulating too much pretax retirement savings can lead to tax issues in the future, particularly in relation to Medicare premiums and required minimum distributions.
Determining the optimal approach to spousal IRA contributions requires careful consideration of your financial situation and long-term goals. Financial advisors recommend evaluating your current needs, future expenses, and potential tax implications before deciding on the amount to contribute to a spousal IRA. It’s important to strike a balance between maximizing tax benefits and ensuring financial security in retirement.
Spousal IRAs offer married couples a valuable opportunity to boost their retirement savings and lower their tax liabilities. By taking advantage of this lesser-known strategy, nonearning spouses can proactively contribute to their own retirement funds and strengthen their financial future. However, it is essential to carefully assess your individual circumstances and seek guidance from a financial advisor to make informed decisions about spousal IRA contributions. Ultimately, maximizing retirement savings through strategic planning and thoughtful considerations can lead to a more secure and prosperous future for married couples.