Can IRAs Be Held Jointly by Spouses?

Retirement planning is a very integral part of an individual’s long-term financial goals. Coming up with a retirement plan involves determining when you expect to retire as well as figuring out your goals, how much you want to set aside, and how much money you’ll need when you’re ready to call it quits. Once you have that information, you’ll need to choose the right investments. If you’re married, there are special rules you’ll have to follow when you’re saving up for retirement.

While you can designate a spouse (or someone else) as the beneficiary of an individual retirement account (IRA), you can’t hold a joint account. That’s because IRAs can only be maintained in one person’s name. You can’t participate in the same IRA, so if you’re married, you’ll have to have separate investment accounts.

The Internal Revenue Service (IRS) has provisions in place for retirement accounts designed for married couples. There is a special account called the spousal IRA. Sounds exciting, right? There are certain rules you need to know about before you head out to your investment specialist to set one up. We list some of the basics of the spousal IRA to help you navigate through the process.

Naming a Spouse as Beneficiary

Spousal IRAs allow a working individual to contribute to their spouse’s IRA as long as that person doesn’t work or doesn’t have enough income to support contributions. This rule allows one spouse to contribute to their partner’s IRA so that both may take advantage of the maximum contribution limits.

But just because one spouse contributes to the other’s IRA, this doesn’t mean it becomes a joint account. In fact, only the named spouse can benefit from the IRA even though the other contributes. There is a way, though, for the contributing spouse to benefit if the account holder wants to give their spouse access to the account. They can do this by designating their spouse as their IRA’s beneficiary.

As an aside, you can name someone other than your spouse as the beneficiary. But certain states do require your spouse to provide written consent if the account owner wishes to designate a different beneficiary. For this reason, it is so important to review beneficiary designations periodically to determine if any updates or changes must be made.

Creating a Spousal IRA

Spousal IRAs effectively allow married couples to maximize their retirement contributions when one partner may earn little or no income. In order to qualify for spousal IRAs, there are a few mandates that couples must satisfy, including:

• Filing a joint income tax return for the year in which the spousal IRA is created.
• Demonstrating an earned income or other eligible compensation that either equals or exceeds the total amount of the collective contributions made to the two IRAs.

Age and Contribution Limits

The age limits on traditional IRA contributions were repealed by the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which has prompted sweeping changes across the retirement planning landscape. This means there is no age limit as to who can contribute to a traditional IRA in 2022. There was also no age limit in 2020 or 2021. For 2019, there was an age limit of 70½ for traditional IRA contributions and no age limit for Roth IRA contributions.

A couple with sufficient income can fund both of their IRAs to the allowable maximums for that year. In 2021 and 2022, for example, the maximum is $6,000 for anyone under the age of 50 for a traditional IRA. That amount increases to $7,000 for those 50 years of age and over. Depending on their ages, a couple may be able to contribute as much as $14,000 to their two IRAs, effectively doubling their retirement savings for the year.

Contributions for Roth IRAs depend on a couple’s combined modified adjusted gross income (MAGI). For the 2022 tax year, a full contribution is allowed if their MAGI is less than $204,000 while a partial contribution is permitted if the MAGI falls between $204,000 and $214,000. No contribution is allowed if their MAGI exceeds $214,000.

Spousal IRAs demand that participants maintain a keen knowledge of the rules pertaining to tax deductions for traditional IRA contributions, as well as income limits for Roth IRA eligibility. This will help individuals gauge the tax impact of the decisions that factor into their broad retirement planning goals. 

Special Considerations

Spousal IRAs have been around since the 1980s. That’s when Congress recognized the need for nonworking married individuals to be able to save for retirement by letting their spouses contribute to IRAs. Individuals were allowed to put aside a maximum of $2,250 to IRAs for themselves ($2,000) and their spouses ($250) and receive a tax deduction under the Economic Recovery Tax Act of 1981 (ERTA).

This investment vehicle has evolved significantly over the years right down to the contribution limits set by the IRS. Limits are adjusted for inflation and reported annually by the IRS. And individuals can choose to make contributions to a traditional or Roth spousal IRA.

Traditional Spousal IRA

This investment relies on pretax contributions that grow on a tax-deferred basis, which means withdrawals are only taxed as ordinary income when the account holder makes withdrawals during retirement.

The full contribution, on the other hand, can be used as a tax deduction on the couple’s joint annual tax returns provided the working spouse isn’t covered by an employer-sponsored retirement plan. The following table highlights income limits based on an individual’s MAGI and the total deduction allowed by the IRS for 2022: