Take advantage of this hidden marriage perk.
The spousal IRA rules were eventually changed to allow a working spouse to contribute to the IRA of a spouse who earns little or no income. This provision might benefit a couple when one spouse is working and the other is not, whether the nonworking spouse is a student, raising children, unemployed, or even retired.
When making spousal contributions, you have the same choice between the up-front tax deduction associated with a traditional IRA or tax-free withdrawals offered by a Roth IRA.
An individual with earned income can contribute up to the maximum amount allowable to his or her own IRA - and up to the maximum amount additionally to their spouse’s IRA, as long as the couple’s combined income exceeds both contributions and they file a joint tax return. An additional $1,000 catch-up contribution can be made for each spouse who is age 50 or older.
All other IRA eligibility rules must be met. So if a spousal contribution is made to a traditional IRA, the nonworking spouse must be under age 70½ in the year for which the contribution is made. There are no age limits for contributions to a Roth IRA.
Traditional IRA Deductibility
Traditional IRA withdrawals are taxed as ordinary income and may be subject to a penalty if withdrawn prior to age 59½, with certain exceptions as outlined by the IRS.
The Roth Option
The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright 2016 Emerald Connect, LLC.