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When one spouse stays home full time, the spousal IRA is the most overlooked retirement tool there is
The basic IRA rule is that you need earned income to contribute. Someone with no work income can't fund an IRA.
But marriage creates an exception, and plenty of people don't know it exists.
What a spousal IRA is
The spouse without work income can use the other spouse's earnings to qualify for an IRA of their own.
This isn't a shared account; the account is registered in the non-earning spouse's own name and the money is theirs. Only the eligibility to contribute borrows the other spouse's earned income.
The condition
You must file jointly.
It doesn't apply to separate returns. That's one more factor to weigh when evaluating joint versus separate filing (see items 16 and 62 of the checklist).
Why it matters so much
Because retirement accounts are individual, not household.
Someone who stays home full time and accumulates no retirement assets in their own name during those years has their entire retirement security attached to their spouse's accounts. And dividing retirement accounts in a divorce, or inheriting them on a spouse's death, are separate processes with their own complications.
A spousal IRA keeps those years from being a blank. For the spouse who left the workforce to care for children or an elderly parent, that's a substantive difference.
Amounts
The annual limit is adjusted for inflation each year, and this site deliberately doesn't hard-code figures. Check the official amount for the year before contributing:
Two things to note:
- Each spouse has their own separate limit; it isn't one shared allowance
- But the two combined can't exceed the household's total earned income
Traditional or Roth
Both work under the spousal IRA rules. A simple way to decide:
- Traditional: deduct now, taxed in retirement. Suits households in a high bracket today
- Roth: taxed now, tax-free in retirement. Suits a low bracket today with income expected to rise
Roth has an income limit, and once you file jointly household income is combined and may exceed the threshold, which is another thing to revisit after marrying.
When to contribute
You can usually fund a given year's IRA up to the filing deadline of the following year. So even if you're only learning this now, last year's contribution may still be within reach.
Look at these together
After marrying, you should also review both retirement portfolios side by side. If you each bought the same kind of index fund, what looks diversified is actually heavily overlapping (see item 78 of the checklist).
And don't forget beneficiaries: designations on a 401(k) and an IRA beat the will (see item 19 of the checklist).
In one line
As long as you file jointly, the non-earning spouse can fund an IRA of their own, so don't let the caregiving years be a blank on the retirement ledger.