Spousal IRA
A Spousal IRA is a retirement account specifically designed for a spouse who doesn't earn income but is married to someone who does. It allows the non-working spouse to contribute to a retirement account based on the working spouse's income.
Example #1
For instance, if one spouse works and the other doesn't, the working spouse can contribute to a Spousal IRA on behalf of the non-working spouse.
Example #2
If a stay-at-home parent wants to save for retirement but doesn't have earned income, the working spouse can contribute to a Spousal IRA for them.
Misuse
Misuse of a Spousal IRA can occur when a working spouse contributes to both their own IRA and a Spousal IRA in excess of the annual contribution limits. This is important to prevent because it can lead to tax penalties and complications with the IRS, impacting the couple's long-term retirement savings.
Benefits
The benefit of a Spousal IRA is that it allows a non-working spouse to build retirement savings even without earning income. It provides financial security for both spouses during retirement.
Conclusion
Spousal IRAs offer a valuable opportunity for couples to save for retirement together, even if one spouse isn't working. When used correctly, they can enhance the overall financial well-being of both partners in the long term.
Related Terms
Retirement PlanningIRAIncome Statement401(k)