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A Guide to the Spousal Roth IRA

A Guide to the Spousal Roth IRA

The Roth IRA is one of the better investment choices for securing your financial future after retirement. This retirement plan allows you to save money. The money saved in this retirement plan is typically not taxed, allowing you to keep more of your own money for when you retire. Like most matters involved in investments and retirement planning, it can be tricky to understand all the different aspects of the Roth IRA. One of these trickier parts is the spousal Roth IRA.

Because the Roth IRA is such a great deal for workers, a specific limit has been placed on how much money can be contributed to it each year. This figure is based on your income. At different levels of annual income, different amounts of money can be contributed to your Roth IRA. But if you are married and file your taxes jointly, then this figure can be changed based on your spouse’s income. This is what is referred to as the spousal Roth IRA.

This is especially useful if your income does not qualify or barely qualifies, leaving you with only a very small amount that you are allowed to contribute to your Roth IRA each year. The spousal Roth IRA allows you to contribute more based on the income of your spouse. The calculation for your qualifying income, then, rather than just being based on your annual income, is based on your qualifying income AND your spouse’s qualifying income. Then any regular contributions that your spouse makes to traditional or Roth IRAs are subtracted from that number to come up with the final qualifying limit, making it so that you can contribute more than you were able to before.

There are other requirements that are still in play, though, and you have to make sure that you stay within those requirements. For instance, if your combined income level, as calculated using the formula above, is greater than a certain level, then you fall into the high end of the qualifying limits and may be affected by phase-out rules.

However, for most people, the spousal Roth IRA process is pretty easy. If one spouse earns a certain amount above the limits for the Roth IRA, then both spouses are able to contribute the full maximum amount into the spousal Roth IRA each year.

It may sound as if the spouse with the qualifying income is the one who has to contribute the money into the IRA, but this is not the case. The money to be contributed can come from anywhere, whether it is the qualifying spouse, the spouse with the spousal IRA, or even a gift from family. No matter where the money comes from specifically, it can be contributed, increasing your future financial security.

The rules for the spousal Roth IRA stay the same as for a traditional Roth IRA. It is your Roth IRA, and you still need to make your contributions (again, regardless of where the money is specifically coming from). It is not to be confused with a joint acocunt, since the I in IRA stands for ‘individual.’ But since any retirement account will ultimately benefit both partners in a marriage, then a spousal Roth IRA is a great way to make sure that your retirement future is financially secure.

Photo courtesy of SqueakyMarmot.

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