Spousal IRA Explained

If you’re a stay at home mom or dad, you can make a deductible IRA contribution (or non-deductible if you opt for a Roth) of up to $5,000 for 2008 if you file a joint return and your working partner/spouse has enough earned income to cover the contribution. That’s right, even if you don’t personally earn the income, if you file a joint return than you can contribute to what is known as a spousal IRA.

The rules regarding the Spousal IRA are the same as any other IRA. Your contribution is capped at $5,000 a year, $6,000 if you are older than 50, and you must have the earned income to do it. For example, if you and your spouse want to both contribute the maximum towards your IRAs, your combined earned income must be greater than $10,000 ($5k each). For the purposes of a Roth IRA, the contribution phaseout schedules still apply.

Deductibility Phaseout Rules

The rules start to get a little tricky when you’re talking about deductible IRA contributions and qualified retirement plans (like 401ks). If neither one has a qualified retirement plan, you’re in the clear and can deduct up to $10,000 of contributions. If both participate in a qualified retirement plan, then the phaseout is from $85k to $105k in earned income for deductibility purposes. That means that if your combined AGI is over $105k, then you cannot deduct your Traditional IRA contributions.

If only one participates, then it gets tricky. The deductibility phaseouts for the one participating is the $85k to $105k one listed above. The non-participating spouse instead uses the $159k to $169k phaseout period. For example, if a couple only has one participating member and earns $120k, then the participating spouse can’t deduct contributions but the non-participating spouse can.

Roth IRA

Or you can contribute it all to a Roth IRA, which are after-tax dollars, and then deductibility is not an issue. The phaseouts for the Roth IRA for 2008 are $159k to $169k, meaning if you earn more than $169k then you cannot contribute to a Roth IRA.