Setting Up a Spousal IRA

Families in the United States nowadays are sometimes forced to have both parents work just to gain that sense of prosperity.  However, some families remain insistent on having either one of the parents, usually the husband, work while the spouse remains at home taking care of the children. 

There is nothing wrong with both scenarios as long as families are able to strike a balance between gaining success in a career and developing filial relationships.  However, families with only one parent working usually struggle in earning enough income for their future, but employee can actually have their stay-at-home spouses avail of an IRA.  Here are the requirements and procedures in setting up a spousal IRA.

Meet the eligibility requirements

In order for your spouse to become qualified for a spousal IRA, you must be legally married at the end of the tax year and have filed a joint income tax return.  You must also be employed and have an net income costing at least the amount you contribute to the IRA.

Choose between traditional and Roth IRA

Your spouse must be under the age of 70 ½ in order to be eligible for a traditional IRA.  Meanwhile, there are no age limits if you plan to open a Roth IRA.

Name the IRA after your spouse

Make sure to open the IRA using your spouse’s name, with only you as the beneficiary.  Joint accounts are not allowed even though you are making the contribution.  Your spouse’s social security number is also needed in applying for spousal IRA.

Review the compensation limits

For a traditional IRA, the amount you earn in order to contribute to a spousal IRA is limitless.  Meanwhile, there is a limited amount when contributing for a Roth spousal IRA, which you cannot go over. 

For more information, read the IRS Publication 590 for the compensation current limit for high income persons.  Also, you need to take advantage of the catch-up limit if you and your spouse are over 50 years of age.

Review the contribution limits

Contribution limits differ depending on the type of IRA as well as the tax year.  For 2008, you can contribute the lesser of your earnings or $5000 to a spousal IRA. 

If your spouse is over 50 years old, you can contribute an additional $1000.  Remember that only contributions to a traditional spousal IRA are tax deductible up to the maximum contribution limits.

Learn the deduction limits

If your workplace does not provide a retirement plan, you would still be able to deduct the full amount of your spousal traditional IRA from your income tax return.  Meanwhile, your deduction could be reduced if you are covered by a retirement plan. 

Take advantage of a tax deduction by opening a spousal IRA and making a contribution before the federal income tax filing date for the tax year.  For more information, refer to IRS Publication 590.

 

Posted by Ardent Editor on Sep 5 2008 in IRAs

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