When you save for retirement, sometimes it happens in a vacuum—just you, saving for retirement. That’s if you remain unmarried. However, for many people, involving your spouse in the retirement plans is essential. Not only do you need to stay on the same page for your marriage and for your long-term goals but understanding that there are arrangements known as “Spousal IRAs” can actually affect how you save for retirement. To help explain what we mean by this, let’s look into what a Spousal IRA really is, and what it means for anyone looking to put aside as much money for retirement as possible.
What is a Spousal IRA?
First things first: let’s get one thing clear. A Spousal IRA is not a specific account type. In fact, it’s a strategy. Here’s what Investopedia lists as the definition of a Spousal IRA:
A Spousal IRA is a strategy that allows a working spouse to contribute to an individual retirement account (IRA) in the name of a non-working spouse with no income or very little income. This is an exception to the provision that an individual must have earned income to contribute to an IRA. However, the working spouse’s income must equal or exceed the total IRA contributions made on behalf of both spouses.
This means that a “Spousal IRA” isn’t really an account you create. Rather, it’s the ability to contribute to an individual retirement account in the name of your spouse who may not be working. In this case, it would require that the spouse isn’t working or earning very little income. However, as Investopedia notes, you’ll have to make sure that you qualify for this kind of arrangement so it’s a good idea to check with an advisor who knows your specific financial situation.
What Kinds of IRAs Work for Spousal Contributions?
To understand how this all works, the first thing to know is that spousal contributions are relatively simple and straightforward. However, if you’re just being introduced to this topic, it might sound strange and unusual, which means you’ll have to learn the basics. One of the most formative questions here is what kind of accounts qualify for Spousal IRA contributions.
As Investopedia notes: “Spousal IRAs can be either traditional or Roth IRAs and are subject to the same annual contribution limits, income limits, and catch-up contribution provisions as traditional and Roth IRAs.” That means that you have the option of using either Traditional or Roth IRAs for this strategy, which should keep the contribution limits straightforward. After all, Traditional or Roth IRAs typically have the same contribution limits, depending on your situation. And this means that you’ll have a better idea of what you can contribute towards a spouse’s IRA.
What About Self-Directing an IRA?
This arrangement might sound complicated, but it comes down to who makes contributions to the IRA, and with spousal arrangements, there may be more options than you know. However, it’s also important to know what self-directing is. Under a Self-Directed IRA, you’ll have the option of investing in a wide array of potential retirement asset classes. This can include real estate (such as single-family rental units) and precious metals. It may also include private notes. In fact, the options are so wide-ranging that it’s easier to list what you can’t invest in with a Self-Directed IRA.