When one spouse does not work outside of the home, it can be hard for married couples to save for retirement especially if they are caring for their children or elderly family members. In general, an IRA contribution is allowed only if a taxpayer has compensation. The good news is there is an exception allowing a “spousal” IRA for the non-employed spouse.
A spousal IRA has the same contribution limit that applies to the working spouse. For 2020, this amount is $6,000 as long as the couple together has at least $12,000 of earned income. This means that in total the couple could fund up to $12,000 ($6,000 in each IRA)
IRAs offer two types of benefits for taxpayers who make contributions to them.
- Contributions to an IRA may be tax deductible.
- The earnings on funds within the IRA are not taxed until withdrawn for Traditional IRAs.
Alternatively, you may make contributions to a Roth IRA. There is no tax deduction for this, but, distributions will be tax-free if certain requirements are met.
Catch-up Contributions
Individuals who are 50 years or older can make “catch-up” contributions to an IRA or Roth IRA in the amount of $1,000. This means for 2020, a taxpayer and his or her spouse, who are both 50 years or older by the end of the year, may contribute up to $7,000 each, or a total of $14,000 that may be tax deductible.
The amount of “deductible” contributions may be limited if certain income thresholds are met and if the working spouse is an active participant in another qualified/employer sponsored retirement plan. A deductible contribution of up to $6,000 (or $7,000 for a spouse who will be 50 by the end of the year) can be made to the IRA of the non-participant spouse only if the couple’s adjusted gross income does not exceed $104,000. The deductible contribution is phased out for AGI between $196,000 and $206,000.
Timing of IRA Contributions
Contributions can be made to your IRA, for a particular year, at any time during the year or by the due date for filing your return for that year (e.g., normally April 15th). Because the due date for filing the 2019 Federal income tax returns has been postponed to July 15, 2020, the deadline for making contributions to your IRAs for 2019 is also extended to July 15, 2020.
Contact your Wegner CPAs tax professional if you have questioned whether you or your spouse are eligible to fund a Traditional or Roth IRA.
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