IRS Rules for an IRA Transfer to a Spouse

Individual retirement accounts (IRAs) are an invaluable tool for saving money for retirement, but they also limit how and when you can access your money. IRAs are strictly personal accounts, so you generally cannot transfer an IRA to someone else, even your spouse while living. In most cases you leave a beneficiary on the account that is activated upon your death.

It is possible, however, to transfer an IRA to a spouse in certain special situations. Let's take a look at what warrants the IRS to allow for a transfer of an IRA.

An IRA can only be set up in the name of one person. Spouses cannot share a single IRA through joint ownership, and you can't transfer an IRA directly to your spouse. The only way you can give IRA assets to someone else outside of divorce or death is by withdrawing money from your account.

You can't transfer the account itself. Withdrawals from IRAs may be subject to income tax and if you take money out before age ​59 1/2​, you may face a ​10 percent​ early withdrawal penalty.

According to the IRS, the transfer of an IRA to a spouse is possible in the case of divorce or legal separation. A decree of divorce or separate maintenance made by a court may involve the transfer of interest in an IRA from one spouse to another. When this occurs, the spouse receiving the IRA can take ownership of the account by transferring money into a new or existing IRA or changing the name on the account.

If you pass away before you take all the money out of your IRA, your account passes to the account's beneficiary. You can designate a beneficiary for an IRA when you first open it and you can change your beneficiaries at any time. A spouse named as a beneficiary can treat an inherited account as a personal account by changing the name on the account or transferring the money from the inherited account into a new or existing IRA.

While you can't share an IRA with a spouse or transfer an IRA outside of divorce or death, you and your spouse can each have your own separate IRAs. If one spouse works while the other spouse is a homemaker, the working spouse can open and contribute to an account for the homemaker spouse as well as their own IRA.

If you file a joint tax return, your income counts as taxable compensation for you and your spouse. This means when you contribute to a traditional IRA on behalf of your spouse, even if your spouse does not earn any income, it could benefit your tax situation.

While the IRS has the tax incentive called the Saver's Credit, it would be wise to contribute to two accounts if financially possible. Depending on the type of IRA you have, you can get tax benefits either now or later.