When it comes to saving for retirement, many married couples overlook the potential benefits of spousal Individual Retirement Accounts (IRAs). While traditional IRA contributions typically require earned income, spousal IRAs offer an exception for single-income households. These accounts, whether Roth or traditional, can provide valuable tax breaks and enhance retirement savings for non-working spouses. Despite their potential advantages, spousal IRAs remain underutilized in many financial planning strategies.
Married couples who file joint tax returns still have time to take advantage of spousal IRAs for the upcoming tax year. As the federal tax deadline approaches, couples can make 2023 IRA contributions for each spouse, provided there is sufficient earned income to support the deposits. Traditional pretax spousal IRA contributions offer potential tax benefits, depending on factors such as income levels and participation in workplace retirement plans.
Given the phaseouts for IRA deductibility and Roth IRA contributions based on income, many couples delay making IRA contributions until the last minute. With a contribution limit of $6,500 for 2023 (increasing to $7,000 in 2024), even small contributions to a spousal IRA can yield significant tax savings. Financial planner Judy Brown emphasizes that it’s not necessarily an all-or-nothing decision, and even modest contributions can make a difference in the long run.
While spousal IRA contributions can be beneficial for many couples, it’s essential to consider various factors before making deposits. Financial planner Laura Mattia cautions that some couples may need available cash for current expenses or short-term goals, such as funding a wedding. Additionally, accumulating too much pretax retirement savings could lead to future tax challenges, especially when it comes to required minimum distributions and potential impacts on Medicare premiums.
Planning for retirement is a multifaceted puzzle that requires careful consideration of a range of factors. The decision to contribute to a spousal IRA should align with long-term financial goals and individual circumstances. While spousal IRAs offer unique advantages for non-working spouses, they are just one piece of the larger retirement planning picture. Working with a financial advisor can help married couples navigate the complexities of retirement saving and ensure that their strategies are aligned with their specific needs and goals.
Spousal IRAs represent a valuable and often overlooked opportunity for married couples to maximize their retirement savings and potential tax benefits. By understanding the rules and advantages of these accounts, couples can take proactive steps to enhance their financial security in the years ahead. As with any financial decision, careful consideration and consultation with a qualified advisor are essential to creating a comprehensive retirement strategy that meets their unique needs.