Maximizing Retirement Savings: How Nonworking Spouses Can Still Contribute to an IRA

Married couples often face challenges in saving enough for retirement, especially when one spouse doesn’t work outside the home—perhaps to care for children or elderly parents. While IRA contributions typically require the taxpayer to earn compensation, there’s an important exception: the spousal IRA. This provision allows contributions to be made on behalf of a nonworking spouse, helping couples maximize their retirement savings. Here's what you need to know.

Contribution Limits for Nonworking Spouses

For 2024, eligible married couples can contribute up to $7,000 to an IRA on behalf of a nonworking spouse, which is the same limit that applies to the working spouse. This means that as long as the couple has at least $14,000 in earned income, they can contribute $7,000 to an IRA for each spouse, for a total of $14,000. Contributions can be made to either a Traditional IRA, a Roth IRA, or a combination of both, as long as the combined contributions do not exceed the $14,000 limit.

IRA Benefits: Traditional vs. Roth

Traditional IRAs offer two key advantages for taxpayers:

1. Contributions of up to $7,000 per year may be tax-deductible.
2. Earnings on funds within the IRA aren’t taxed until they are withdrawn.

Alternatively, contributions to a Roth IRA are made with after-tax dollars, meaning there’s no immediate tax deduction. However, if certain conditions are met, the distributions from a Roth IRA can be completely tax-free, offering a powerful tax planning strategy for retirement.

Boost Contributions If You’re 50 or Older

Individuals aged 50 or older can take advantage of "catch-up" contributions, which allow an additional $1,000 to be contributed to an IRA or Roth IRA. For 2024, this means that a taxpayer and their spouse who are both 50 or older can contribute up to $8,000 each, bringing their combined contribution limit to $16,000.

Consider Income Limits for Deductibility

There’s one caveat: if the working spouse is an active participant in an employer-sponsored retirement plan, the couple’s adjusted gross income (AGI) affects the deductibility of the IRA contributions. For 2024, if the couple’s AGI exceeds $123,000, the nonparticipant spouse’s IRA contribution may not be fully deductible. Understanding these limits is crucial for effective retirement planning.

Plan for the Future

Contributing to a spousal IRA can be a strategic way to enhance your retirement savings, even when one spouse isn’t earning an income. If you need more information on IRAs or want to discuss your retirement planning options, contact us. We’re here to help you build a secure financial future.