Unlocking the Power of Spousal IRA Contributions
For many families, retirement planning isn’t just about maximizing one person’s savings—
it’s about building a coordinated strategy that allows both spouses to grow and protect
wealth together. One often‑overlooked opportunity in this process is the spousal IRA
contribution. A spousal IRA isn’t a separate account type; it’s simply a traditional or Roth
IRA that allows a spouse with low or no income to make contributions based on their
partner’s earnings. The working spouse must have enough earnings to cover both
contributions, and the couple must file a joint tax return.
Understanding “Covered” vs. “Not Covered” by a Workplace Plan
IRS deduction rules turn on whether either spouse is covered by an employer‑sponsored
retirement plan. A person is considered covered if they participate in a workplace plan like
a 401(k), 403(b), or government 457(b). Being covered can restrict how much of a
traditional IRA contribution you may deduct at tax time. If neither spouse is covered by a
plan, both may fully deduct their traditional IRA contributions regardless of income.
Because “covered” and “non‑covered” are shorthand used by many planners (not official
IRS terminology), the article uses them after this explanation.
Benefits of Spousal IRA Contributions
- Spousal IRA contributions allow a married couple filing jointly to contribute to two IRAs—
even if one spouse doesn’t have earned income. For 2025, the contribution limit remains
$7,000 per person under age 50 and $8,000 per person age 50 or older. When both
spouses qualify for catch‑up contributions, a couple could invest up to $16,000 per year,
even if one spouse is not employed. Key benefits include: - Equalizing retirement savings. Spousal IRAs help couples ensure both partners
have retirement savings in their own names. This is especially valuable when one
spouse takes time away from the workforce to care for children or aging parents. - Tax flexibility. Contributions can go into traditional IRAs (potentially deductible) or
Roth IRAs (after‑tax). Roth contributions don’t provide an upfront deduction, but
earnings may be withdrawn tax‑free if the account has been open at least five years
and the owner is over 59½. Roth IRAs also aren’t subject to required minimum
distributions (RMDs) during the original owner’s lifetime - Greater control over withdrawal strategies. Having separate accounts can
provide flexibility when managing RMDs, Roth conversions, and estate planning.
Deduction Rules for Covered vs. Non‑Covered Spouses
If Both Spouses Are Covered
For 2025, married couples filing jointly who are both covered by retirement plans at work
face a phase‑out on deducting traditional IRA contributions when their modified adjusted
gross income (MAGI) is between $126,000 and $146,000. Couples above $146,000
receive no deduction. Singles covered by a plan face a phase‑out between $79,000 and
$89,000. Contributions may still be made, but they are not deductible, and earnings
grow tax‑deferred.
If One Spouse Is Covered and the Other Is Not
When the working spouse is covered and the other spouse is not, the non‑covered
spouse has a higher income threshold for deducting contributions. For 2024 (and generally
similar for 2025), couples filing jointly can fully deduct traditional IRA contributions if their
MAGI is $230,000 or less; the deduction phases out between $230,000 and $240,000.
If their MAGI exceeds the top of the phase‑out, no deduction is allowed. When neither
spouse is covered, contributions are fully deductible regardless of income.
Roth IRA Eligibility
Roth IRAs have separate income limits. For 2025, couples filing jointly can make a full Roth
contribution if their MAGI is under $236,000, a partial contribution if MAGI is between
$236,000 and $246,000, and none if MAGI exceeds $246,000. Singles can contribute
fully under $150,000 with a phase‑out between $150,000 and $165,000.
Potential Downsides and Considerations
Spousal IRA contributions are powerful, but they’re not a panacea. Investors should be
aware of potential drawbacks and risks, particularly under SEC and Greenboard
compliance requirements that demand balanced, non‑promotional explanations of
investment strategies:
1. Non‑deductible contributions. If you or your spouse participates in a workplace
plan and your combined income exceeds the phase‑out range, your traditional IRA
contribution may not be deductible. You can still contribute (up to the annual
limit), but you won’t receive a current‑year tax break. In that case, consider whether
Roth contributions or other savings vehicles are more suitable.
2. Income limits on Roth contributions. High‑income couples may be unable to
contribute to a Roth IRA directly once their MAGI surpasses the eligibility
threshold. Backdoor Roth strategies—making a non‑deductible traditional IRA
contribution and then converting to a Roth—may help, but they carry pro‑rata tax
consequences that warrant professional guidance.
3. Early‑withdrawal penalties and RMDs. Traditional IRA withdrawals are taxed as
ordinary income and may be subject to a 10 % penalty if taken before age 59½.
Traditional IRAs also require RMDs starting at age 73. Roth IRAs avoid RMDs, but
contributions are made with after‑tax dollars and still face early‑withdrawal
rules.
4. Investment risk. All investing involves risk, and the value of IRA investments can
fluctuate, potentially resulting in a value that is less than your initial contributions.
This is especially relevant for those who have higher exposure to portfolio risk.
5. Joint filing requirement and ownership issues. To make a spousal IRA
contribution, couples must file a joint tax return. The IRA is owned by the
non‑working spouse; those assets belong solely to that spouse even if the marriage
ends. Couples who normally file separately or have complex marital property
arrangements should weigh the pros and cons.
6. Opportunity cost and cash‑flow implications. Funding both IRAs requires
sufficient earned income and cash flow. High‑income families may need to decide
between maximizing employer plans, spousal IRAs, health savings accounts, or 529
plans. Consider your overall savings priorities and how these contributions fit into
your cash‑flow plan.
High‑Net‑Worth Strategies and Early‑Retirement Scenarios
For high‑net‑worth families—particularly those in which one spouse retires early while the
other continues working—spousal IRAs can provide tax planning flexibility. Below are
considerations:
- Pre‑tax contributions to reduce current income. When a spouse is still working in
a high tax bracket, making traditional (pre‑tax) contributions to both the working
spouse’s employer plan and the retired spouse’s IRA may lower the household’s
taxable income. However, this strategy can create larger RMDs later and may push
survivors into higher tax brackets after one spouse dies. - Roth contributions for tax diversification. Contributing to a Roth IRA for the retired
spouse during the years when household income is lower (e.g., after one spouse
retires but before Social Security or required minimum distributions begin) can help
build a pool of tax‑free assets. Because Roth IRAs aren’t subject to RMDs, they
provide flexibility for meeting future spending needs or leaving assets to heirs. - Coordination with other retirement accounts. High‑net‑worth families often have
multiple accounts: employer plans, taxable brokerage accounts, and IRAs.
Coordinating asset location—placing higher‑growth assets in Roth accounts and
income‑producing assets in taxable accounts—can improve after‑tax returns. Also
consider the impact of Medicare surcharges and Social Security taxation when
deciding which accounts to draw from. - Estate planning considerations. Roth IRAs can be advantageous for heirs because
qualified distributions are generally tax‑free, and beneficiaries can spread
distributions over their lifetimes under current law. However, large traditional IRA
balances left to non‑spouse heirs typically must be withdrawn within ten years,
accelerating taxation. - Watch out for the “marriage penalty.” Because spousal IRA contributions are
based on joint income, high‑earning couples may quickly hit the phase‑out ranges
for deductions and Roth eligibility. In some cases, it may make sense to focus on
taxable or employer retirement accounts or to pursue a backdoor Roth conversion.
Conclusion
Spousal IRA contributions offer a valuable tool for couples to maximize retirement savings
and balance their tax exposure, but they are not suitable for every situation. Understanding
how employer coverage, income limits, and account types affect deductibility and
eligibility is crucial. High‑net‑worth families should weigh the benefits of pre‑tax versus
Roth contributions, consider the potential downsides—like non‑deductible contributions,
early‑withdrawal penalties and RMDs—and coordinate these decisions with broader
retirement and estate planning strategies. Because the rules can be complex and the
stakes are high, always consult a qualified tax or financial advisor before implementing
spousal IRA strategies.
Disclaimer: This article is for informational and educational purposes only. It should not be
construed as specific tax, legal, or investment advice. Contribution limits, deduction rules,
and tax treatment vary based on income, filing status, and whether either spouse is
covered by an employer‑sponsored retirement plan. Consult the IRS and a qualified
professional for guidance tailored to your circumstances.
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