By Sarah Brenner, JD
Director of Retirement Education
The pandemic has upended the workforce. Many workers lost jobs. Some workers resigned by choice. Others were forced to leave jobs due to childcare issues. If you are not working outside the home, you may believe you are ineligible to make an IRA contribution. You may think that because IRA contributions are based on taxable compensation, if you personally have not been working, you are out of luck. Good news! If you are married but not working, you may be able to make a contribution to your IRA based on your spouse’s taxable compensation for the year. These IRA contributions are called “spousal IRA contributions.” Spousal IRA contributions can be a valuable tool if you are out of the workforce and are concerned about the impact this may have on your retirement savings.
To do a spousal contribution, you make a contribution to your IRA based on your spouse’s compensation. Your spouse can still contribute to an IRA too, as long as he or she has enough earned income or taxable compensation to fund both contributions. Keep in mind that other IRA contribution rules still apply. There are income limits for Roth IRA contributions and, if your spouse is an active participant in a retirement plan, that can affect your ability to deduct your traditional IRA contribution.
You may make spousal IRA contributions in some years and regular IRA contributions in others. For example, if you were a stay-at-home parent in 2021 and the only income was generated by your spouse, you may make a spousal contribution for 2021. If you go back to work in 2022 and have taxable compensation, you could then make a regular contribution for 2022. Your 2021 spousal IRA contribution and your 2022 regular IRA contribution may both be made to the same IRA. There is no need to keep regular and spousal contributions in separate IRAs. You do not have to inform the IRA custodian that you are making a spousal contribution instead of a regular contribution because there is no special reporting required by the IRS. You are not required to contribute to the same type of IRA as your spouse. For example, you may choose to contribute to a traditional IRA and your spouse may contribute to a Roth IRA. You are also not required to make your contributions at the same time or with the same IRA custodian.
To make a spousal contribution for the year, you must be legally married on December 31 of that year. If you are divorced or legally separated as of that date, you are not eligible even if you may have been married earlier in the year. You must also file a joint federal income tax return for the year.