If your spouse stops working, what options do they have to continue making ira contributions for retirement? Assuming your husband or wife earned the minimum threshold of income for the previous year, the working individual can make contributions to a spousal ira.
Traditional Rules
The rules governing the traditional ira also govern the spousal retirement arrangement. Deposits into this account are not taxed, and may not be withdrawn without penalty before the age of 59 1/2, and no later than the age of 70 ½. As of 2010, the annual limit one can add to this account is $5,000 for those under 50, and $6,000 for people over the age of 50. To sponsor a traditional retirement arrangement for a spouse, there are some qualifications the individual has to meet.
The couple must be married, filing a joint income tax return, and the contributor must earn at least as much as they deposit into the account. These restrictions discourage false representation by people who are not married and wish to open up an income tax shelter. The option has particular benefit to people whose spouses have ceased working to care for children, or have become unemployed.
Benefits and Details
Just like a traditional version, contributions made to a spousal ira are 100% deductible. This may be limited for individuals also participating in a 401k plan through their employer. The amount of the contribution one can deduct will then depend on the individual’s income and tax filing details, which a professional tax consultant can assist with.
Even though starting an ira for spouses requires the couple to be married and filing taxes jointly, the account must be held individually. This means it is filed under the social security number of the person receiving the contributions. Notwithstanding other restrictions, be sure to send or deposit the money by April 15 to be included as a tax deduction.
The benefits to starting an ira, whether a traditional or Roth type, are many. For one thing, it enables the couple to maximize the amount of tax-sheltered income they can accumulate. If they can afford it, the person working can add to their own ira while also making deposits to their spouse’s ira. This doubles their tax-sheltered contributions, and possibly their tax deductions as well; an ideal arrangement for couples who will be sharing retirement savings anyway.
Don’t Forget
Stocks, bonds, or other instruments can not be used to make deposits to this account. Cash and checks are the only accepted method. Contributions to the account can be made throughout the year, as often as you like, until the maximum is reached; but don’t forget to get it in by April 15 to claim it on your taxes. Consider both the traditional and Roth ira for spouses. The latter has earned income limits, but the money is taxed as earned income going into the account, and is tax free when taken out.
Because of this, there is no maximum age limit when one is required to take distributions. Money in a Roth account can grow indefinitely. Before you choose, consult with a professional who can help you determine the right instrument for your situation.
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