As long as there is earned income from one spouse, an IRA can be funded each year for either spouse or both up to the income amount. So if you are still working but your spouse is not, you can fund an existing IRA for them or open a new account if they don’t already have an IRA. Earned income is generally defined as wages from a job or self-employment income from a business.
For tax year 2021, $6,000 a year can be contributed to an IRA ($7,000 if 50 or over). Even if just one spouse is working, a second spousal IRA can be fully funded each year as long as there is at least $12,000 of earned income ($14,000 if 50 or over). There are rules restricting tax deductions for IRA contributions based on total income. However, there are no maximum income restrictions for non-deductible contributions. This can allow the retirement savings to grow twice as fast—a great wealth building technique!
Also, a Roth IRA can be funded in the same manner, however, there are also income limits with Roth IRAs. A married couple filing jointly with more than $198,000 of modified adjusted gross income (MAGI) in 2021 begins to be phased out and at $208,000 the Roth IRA becomes unavailable. For single filers the phase-out range is a MAGI of $125,000–$140,000.
Another great reason for both spouses to have retirement accounts can come into play regarding asset protection later in life. If one spouse becomes ill, generally they are required to spend down their own assets before they would qualify for Medicaid or government assistance. In Pennsylvania, if the healthy spouse has their own IRA these assets are preserved and don’t have to be spent down for the sick spouse’s medical expenses. They may have never been employed in their lifetime and in some cases having an IRA of their own can be their saving grace!
Originally posted June 2015