There are myriad financial advantages to getting married. You might have access to higher quality health care thanks to a spouse’s benefits plan. You may have increased borrowing power from pooling incomes, making it easier to buy a home. You could have a lower tax burden (unless you’re both high earners, then it’s often higher).
Marriage in the U.S. also unlocks an under-discussed retirement option: the spousal IRA.
Whether your employment situation changes because of layoffs, or you’re taking time off to care for a family member, return to school or just take a break, a spousal IRA offers a way to stay on track for a healthy retirement. Yet many people don’t know it exists.
It can take the form of either a traditional or Roth IRA; the key difference is it’s only available for married couples where one spouse elects to leave the workforce and is earning little to no taxable income.
Once the money is contributed into a spousal IRA, it belongs to the person whose name it’s under. This means stay-at-home parents and those who leave the workforce temporarily have a way to protect their financial futures, especially in the case of a future divorce. (Most of the time, these spouses are women: As of June 2022, labor force participation rates for women ages 25 to 54 were 76.4% in the U.S., while men’s were 88.4%, according to the Department of Labor.)
To be eligible, you must be a married couple and file joint taxes. One spouse must still earn enough to cover both their own contributions and the contributions for the separate spousal IRA.
Spousal IRAs also offer a tax advantage. Depending on income levels, the couple could elect to do a Traditional IRA, which allows their taxable income to be reduced now, or use a Roth IRA, in which they contribute post-tax income but are able to withdraw the money tax-free in the future.
It’s fine if the earning spouse is covered through a retirement plan at work, but this could impact how much of your contributions you can deduct from your taxable income. For example, if you’re married, filing jointly and covered by a retirement plan at work, then your ability to take a tax deduction from traditional IRA contributions phases out at an adjusted gross income of $129,000 in 2022. The twist is, you can still contribute to a traditional IRA, you just don’t get a tax benefit for doing so. Those with an AGI of less than $109,000 can take the full deduction; those more than $109,000 but less than $129,000 get a partial deduction. (The numbers are different for Roth IRAs.)
It should be standard for couples living on a single income to fund a spousal IRA in order to both protect the non-earning spouse and better prepare for the future. Worst case, there’s a divorce and the non-earning spouse has some retirement funds. Best case, there’s even more set aside for both in retirement.
Of course, family finances are a significant reason a spousal IRA may fall by the wayside. For many Americans, trying to balance the cost of living while battling inflation, plus saving for a child’s college education and possibly caring for aging parents, can easily put retirement planning on the backburner.