If your partner isn’t currently employed, together you may be able to capitalize on a tax planning opportunity. TrueNorth Wealth, your local finance firm offering the leading retirement and social security planning services, is advising couples to consider a Spousal IRA. A Spousal IRA is a less known way for a spouse who doesn’t currently work for a paycheck to save toward retirement. It is also another method for couples (joint filers) to receive increased tax advantaged savings, including Roth account benefits, simultaneously lowering their taxable income.
Put simply, if one of the married and joint filing tax payers is not currently receiving a paycheck, the other employed spouse may fund two IRA accounts—one for each of them. Without this Spousal IRA exception, spouses with no earned income could have trouble finding a tax-advantaged way to save toward their retirement years.
There are a few rules to be followed. To fund a spousal IRA account:
· The household must file jointly.
· The account must be in the spouse’s name (an “individual” retirement account).
(Note that if later divorced, the spouse retains this account.)
· Usual IRA maximums apply.
The maximum contribution in 2019 is $6,000 each with an extra $1,000 catch up available for individuals over 50 years of age.
· Earned income of the joint filers must be more than the total contributed amount in both accounts.
· The account may be a Roth IRA, as long as normal Roth income limits (2019 joint limits $203,000 AGI) are not exceeded.
A “2 step” or “back door” Roth option remains available for higher earners.
Advantages include not only the increased savings, but also immediate decreasing of a couple’s taxable income for the year the account is funded. Later years of contributions and tax free savings are also great benefits. Withdrawals for retirement after age 59 1/2 receive further tax advantages, including NO taxes on the Roth account withdrawals (if held for 5 years).
If you are looking to decrease your tax burden, save more toward retirement, or speak to a sale of business advisor, please reach out to me or another advisor at your earliest convenience at TrueNorth Wealth in one of our Utah or Idaho offices.