There are several great reasons to open a spousal IRA. 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. Earned income is generally defined as wages from a job or self-employment income from a business.
You don’t have to be super-rich to take advantage. In 2011, people under 50 can put up to $5,000 a year into an IRA ($6,000 if 50 or over). So even if just one spouse is working a second spousal IRA can be funded each year as long as there is at least $10,000 ($12,000 if over 50) of earned income. 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 and allows withdrawals from principal for any reason with no taxes or penalties. However, there are income limits with Roth IRAs. A married couple with more than $169,000 of adjusted gross income (2011) begins to be phased out and at $179,000 the Roth IRA becomes unavailable. These withdrawals can be used for home improvements, braces for kids, or whatever comes up!
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. 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. And they may never have worked in their lifetime. I have advised many clients on this over the years and in some cases having an IRA of their own is their saving grace!