A spousal IRA is a special type of retirement savings plan that allows a working spouse to contribute to a non-working spouse’s IRA. This option is available when you file taxes jointly. Even if one partner does not have a job or earns little income, you can still benefit from having a retirement account. This plan helps increase a couple’s overall savings, preparing for a comfortable retirement.
Contribution Limits and Tax Benefits
For the tax year 2024, individuals can contribute up to $7,000 to a traditional or Roth IRA. If both spouses are 50 or older, the contribution will be an additional $1,000 each, bringing the total to $14,000. As a result of this tax setup, you can manage your finances more effectively during retirement.
Combining 401(k) Plans and Spousal IRAs
Many couples rely on their 401(k) plans as a primary savings tool for their post-retirement life. However, relying solely on it may not be enough for a comfortable retirement. Here’s how your spousal IRAs can complement these financial plans:
- Boost Total Savings: While one of the spouses contributes to a 401(k), the other can contribute to a spousal IRA, increasing your combined retirement savings.
- Tax Diversification: By having both a 401(k) and a spousal IRA, you and your spouse can use different tax strategies. Tax diversification can balance traditional and Roth accounts to take advantage of tax deductions now and tax-free withdrawals later.
Investment Options and Diversification
In addition to a spousal IRA, you can diversify with a range of investment choices like bonds, mutual funds, and ETFs (Exchange-Traded Funds). By splitting up your retirement portfolio, you and your spouse can reduce risks and increase potential growth. Diversification helps protect your savings from market volatility, as different asset classes often perform differently under varying economic conditions. By balancing your investments across multiple asset types, you’re better positioned to weather market fluctuations.
Planning for Required Minimum Distributions (RMDs)
RMD is the minimum amount you must withdraw from your IRA account every year. Understanding the rules surrounding Required Minimum Distributions (RMDs) is critical for ensuring your retirement savings last. For traditional IRAs, including spousal IRAs, RMDs must begin at age 73 (as of 2024). However, Roth IRAs do not require RMDs during your lifetime, making them a more flexible option for long-term planning.
Strategically planning your RMDs can help you minimize the impact on your taxes while ensuring you have a steady income throughout retirement.
Our team at South Star Wealth Management can help create a customized retirement plan for you and your spouse. We can help tailor a strategy, providing insights to balance your contribution and investments. Schedule a meeting with us today to learn more!