Spousal IRA

A spousal IRA enables an earning spouse to fund an IRA for the other spouse, with certain limitations on deductions. Up to $10,000 (or $12,000 if both spouses are at least age 50) can be contributed in the aggregate to IRAs for both spouses, although no more than $5,000 (or $6,000 for a spouse at least age 50) in each IRA. For example, a working husband could contribute up to $5,000 to his IRA (or $6,000 if he is at least age 50) and contribute an additional amount to an IRA for his non-working wife (up to $5,000, or $6,000 if she is at least age 50).

Among the important spousal IRA conditions are the following:

A working spouse over age 70 1/2 can contribute up to maximum allowed ($5,000 or $6,000 depending on age) on behalf of the non-compensated spouse, if the non-compensated spouse is under age 70 1/2 and the above requirements are met, even if the working spouse cannot on account of age contribute to his or her own IRA.

Each spouse must have his or her separate IRA; both spouses cannot contribute to the same IRA. If the non-compensated spouse later receives compensation, he or she does not have to open another IRA for future contributions. Those future contributions can be deposited in the spousal IRA which has already been established.

A nonworking spouse can make a deductible IRA contribution of up to $5,000 for 2009 ($6,000 if age 50 or older as of 12/31/09) as long as the couple files a joint return, and the working spouse has enough earned income to cover the contribution. However, the deductibility of the nonworking spouse's contribution is phased out for couples with adjusted gross income (AGI) between $166,000 and $176,000, provided that the working spouse is covered by a qualified retirement plan (via a job or self-employment). The working spouse's ability to make a deductible contribution for 2009 is phased out starting at AGI of $89,000. (See the table below for phase-out ranges.)

For example, say a married couple has 2009 AGI of $120,000. All the income is from the wife's job, and she is covered by a qualified retirement plan at work. The nonworking husband can make a $5,000 deductible contribution (because joint AGI is well under the $166,000 threshold for the phase-out rule). If he will be age 50 or older as of 12/31/09, he can contribute and deduct $6,000. However, the working wife cannot make a deductible contribution (because joint AGI exceeds the $109,000 top end for the phase-out range).

When neither spouse participates in a qualified retirement plan (via a job or self-employment), both the nonworking spouse and the working mate can make deductible contributions of up to $5,000 to traditional IRAs $10,000 in total regardless of AGI. For example, say the couples joint AGI is $400,000 from one spouse's self-employment activity. If that spouse has no retirement plan, each spouse can make a $5,000 deductible IRA contribution for 2009 ($6,000 each if both are age 50 or older).

The same is true if they both work. However, they each must have at least $10,000 of earned income between them. (Each spouse can contribute and deduct an additional $1,000 if he or she will be 50 or older as of 12/31/09.)

If both spouses work AND are participants in qualified plans, there are restrictive AGI-based phase-out ranges for deductibility for contributions. For example, if the couples joint 2009 AGI exceeds $109,000, neither spouse can make a deductible IRA contribution for that year. But if their joint 2009 AGI is $89,000 or below, they can both make $5,000 deductible contributions (for a total of $10,000). (Each spouse can contribute and deduct an additional $1,000 if he or she will be 50 or older as of 12/31/09.). The phase out range for deductibility for 2008 is from $85,000 to $105,000.

If both spouses work, but only one is a participant in a qualified retirement plan the participant spouse's ability to make deductible contributions is limited by the phase-out (the range for 2009 is between AGI of $89,000 and $109,000). The nonparticipant spouse is covered by the much more liberal $166,000-to-$176,000 phase-out range.