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The Spousal IRA - Don't Overlook the Opportunity

Posted by John Posey on May 14, 2020

You may already realize it, but did you know you can make an IRA contribution for your non-working or retired spouse assuming you’re still working? With tax deadlines extended for 2019, don’t forget about this potential opportunity for you married folks.  The Spousal IRA doesn’t always come naturally to mind as we generally relate the ability to make an IRA contribution with having earned income as it applies to non-married people. The Spousal IRA is an option as long as one spouse has earned income, but deductibility and contributions can potentially be limited based on income – more on that below.  And for 2020 contributions, new rules from the recently passed SECURE Act allow traditional IRA contributions regardless of age – no longer are you disallowed if you’re over age 70. Interestingly, there wasn’t an age limit for Roth IRA contributions previously, so that remains the same – only earned income is a requirement to make a contribution.

Using a Spousal IRA can be a very useful tool, particularly when one spouse is retired and the other is still working. A Spousal IRA can effectively double the contribution limit for the household from $7,000 to $14,000 allowing each spouse to fully fund an IRA at $7,000 each if both are 50 or older. The IRA limit in 2019 & 2020 is $6,000 per person with an additional $1,000 allowed if 50 or older. It is important to note traditional IRA contribution deductibility and Roth contributions can be limited by the working spouse’s income and if they also have a retirement plan available through their work. First of all, you cannot contribute more than the earned income reported on your tax return. Secondly, if the working spouse is covered by an employer retirement plan, the 2019 phaseout range is between a gross income (Modified Adjusted Gross Income - MAGI) of $103,000 - $123,000. In year 2020, the range is $104,000 - $124,000 of MAGI. If the working spouse has no available plan through their employer, the phaseout ranges are higher at MAGI of $193,00 - $203,000. In year 2020, the range is $196,000 – 206,000 of MAGI. Roth IRA contributions become limited or eliminated in these income ranges and traditional IRA contributions become less than fully deductible to non-deductible. These are important factors to consider when making a Spousal IRA contribution, but many won’t be impacted by the phaseout limits at all.

As you think about making retirement plan contributions, don’t forget about the possibility of a Spousal IRA. It could provide a nice opportunity for some additional tax-advantaged savings.

 And lastly, here’s some random humor.

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Advisory services offered through Plains Advisory LLC, an investment adviser registered with the State of Nebraska. Insurance products and services are offered and sold separately through John Posey, a licensed insurance agent. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Consult your financial professional before making any investment decision.

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