If you are like many couples, you and your wife have joint bank accounts and joint investment accounts, you pay taxes together, and you spend your money together. There are very few things in your financial life you can't combine, but an IRA is indeed one of those things. IRA stands for "individual retirement arrangement," and the IRS requires that it stay individual. Many of the rules for IRAs are spouse-dependent, however, so here's a rundown.
General IRA Contribution Limits
Both Roth and traditional IRAs have annual contribution limits that restrict the amount of money you can save each year. For example, someone under 50 can contribute up to $6,000 in 2021, while someone 50 or older can contribute as much as $7,000. However, the contribution amount can't exceed your annual taxable income, so if you don't work much, you might have a lower annual contribution limit.
Roth Contribution Limits
You can't combine Roth IRA accounts with a spouse. Further, as a married person, you cannot contribute at all to a Roth IRA if your combined adjusted gross income (AGI) is greater than a particular value, $208,000 as of 2021. The IRS also phases Roth contribution limits down as your combined AGI reaches certain levels. As of 2021, couples with an AGI of greater than $198,000 have reduced limits.
Traditional Contribution Limits
While the IRS doesn't prohibit traditional IRA contributions in the same way, you may not be able to deduct those contributions from your taxes if you or your spouse has access to an employer-sponsored retirement plan. If neither you nor your spouse is covered by a retirement plan, you can deduct the full contribution limit.
If one partner is covered and the other is not, the covered partner faces a phaseout to zero when the AGI is between $105,000 and $125,000, while the uncovered partner faces a phaseout at AGI levels between $198,000 and $208,000 If both partners have employer-sponsored plans, the phaseout range drops to $105,000 and $125,000 for both partners.
Considerations With Spousal Contributions
Typically, the IRS requires IRA participants to have compensation – earned income from a job – in order to make contributions. However, if you are married and file taxes jointly, the IRS looks at all compensation as belonging to both partners. Therefore, both spouses can contribute to IRAs even if only one spouse has income.
Total compensation must exceed the value of all IRA contributions, and the working partner's IRA contributions are subtracted first. This means that if you only have $6,000 in compensation and the working spouse makes a full $6,000 IRA contribution, you cannot contribute to the non-working spouse's IRA. You can split the difference by depositing part of that $6,000 to one account and the remaining part to the other account.
Accounts With Spousal Beneficiaries
It's also important to note that while you cannot have joint accounts while you are alive, a surviving spouse can treat her deceased spouse's IRA as her own. If the surviving spouse is listed as a beneficiary on the account, she can take the inherited portion of the deceased's IRA and combine it with her own funds as if they were always one account.
- IRS: Retirement Topics - IRA Contribution Limits
- IRS: Amount of Roth IRA Contributions That You Can Make For 2021
- IRS: 2021 IRA Deduction Limits - Effect of Modified AGI on Deduction if You Are Covered by a Retirement Plan at Work
- IRS: 2021 IRA Deduction Limits - Effect of Modified Agi on Deduction if You Are Not Covered By a Retirement Plan at Work
Nola Moore is a writer and editor based in Los Angeles, Calif. She has more than 20 years of experience working in and writing about finance and small business. She has a Bachelor of Science in retail merchandising. Her clients include The Motley Fool, Proctor and Gamble and NYSE Euronext.