Understanding Spousal IRAs

Many people leave paid employment to spend time on family responsibilities. It's important work, and it can come with a retirement plan: a spousal IRA.

Under current Iaw, most couples can contribute up to $5,000 each to their IRAs, as long as their combined compensation is at least $10,000 for the year in which contributions are made. This means that the spouse with lower or no compensation can contribute $5,000 to a retirement plan for 2012. That amount goes up to $6,000 when that person turns 50, and the plan can be set up as either a Roth IRA or a Traditional IRA.

Spousal IRA contributions are reported to the IRS each year on your joint federal income tax return. If one spouse is not covered by an employer plan, a contribution to a spousal Traditional IRA may be deductible from federal income taxes. In the 2012 tax year, couples can take a full deduction if their combined adjusted gross income is below $173,000 and a partial deduction if it is between $173,000 and $183,000 and they are not covered by an employer retirement plan. If you can deduct the Traditional IRA contribution, then you will pay taxes on the deductible contribution and earnings when you draw on them in retirement. If you can’t deduct the contribution now, then you won’t have to pay taxes on the non-deductible contributions in the future.

Even if you can’t deduct the spousal IRA contribution, because your family income is too high or because you choose a Roth IRA instead of a Traditional IRA, consider making it anyway. It’s a great way to provide for your family’s financial future.

Neither State Farm nor its agents provide tax or legal advice. Please consult your own adviser regarding your particular circumstances.