My Spouse Doesn't Work? How do I Save For Their Retirement?

This is a great question that I get quite often. Many married couples have one income earner in the family and in many circumstances, this can limit their ability to save in tax-advantaged retirement accounts. Let’s say a married couple in their early-40’s has one income earner making $190,000/year and they want to save 15% ($28,500) of their income for retirement. The working spouse has a company 401(k) as well as a Roth IRA. Because the income earner is under 50, the maximum elective deferral for 401(k) in 2022 is $20,500 and the contribution limit to the Roth IRA in 2022 is $6,000.

$28,500 – ($20,500 + $6,000) = $2,000

Total Savings – (401k Max + Roth IRA Max) = Unaccounted Savings

How do we save the additional $2,000 in a tax-advantaged retirement account? Enter, the spousal IRA. This is a strategy designed for married couples with one income earner. Under spousal IRA rules, married couples with one income earner can contribute up to $6,000 ($7,000 if non-working spouse is over age 50) into their spouses IRA on behalf of the non-working spouse.

A few things to consider before implementing this strategy. First, married couples must file a joint return to be eligible to use the spousal IRA strategy. Second, income limits apply to Roth IRA contributions. In this example, the couple’s income is under the $204,000 threshold and they are able to contribute the maximum amount to their Roth IRAs. If you are married filing jointly and your Modified Adjusted Gross Income (MAGI) is over $204,000 you should speak to a Financial Advisor at Whitaker-Myers Wealth Managers about the possibility of the backdoor Roth IRA. Third, the non-working spouse is the account owner even though the working spouse is funding the account. All of the decisions within the spousal IRA are only to be that of the non-working spouse (asset allocation, withdrawals, beneficiaries).

The spousal IRA is a great consideration if you are like the hypothetical couple above or if you just want to save in a Roth IRA with tax free growth, tax free distributions after 59½, and NO REQUIRED MINIMUM DISTRIBUTIONS AT AGE 72. If you are interested in opening a spousal IRA or have questions related to backdoor Roth IRAs, retirement planning, or general investing, you can reach out to one of our Financial Advisors here

Author: Kelly Kranstuber