Financial advisors should talk to serious couples about spousal IRAs

Getting married has many financial benefits. You may have access to better health care through a spousal assistance program. You may have increased borrowing capacity by pooling your income, making it easier to buy a home. You may have a lower tax burden (unless you’re both high earners, then it’s often higher).

Getting married in the U.S. also opens up a little-discussed retirement option: spousal IRAs.

Whether your employment situation changes due to layoffs, or you’re taking time off to care for a family member, go back to school, or just relax, a spousal IRA offers a way to stay on track for a healthy retirement. However, many people do not know that it exists.

It can take the form of either a traditional or a Roth IRA; the key difference is that it is only available to married couples where one spouse chooses to leave work and earn virtually no tax.

When money is deposited into a spousal IRA, it belongs to the person in whose name it is held. This means that stay-at-home parents and those temporarily out of work have the opportunity to protect their financial future, especially in the event of a future divorce. (Those spouses are more likely to be women: As of June 2022, the employment rate for U.S. women ages 25 to 54 was 76.4%, compared to 88.4% for men, according to Department of Labor.)

To be eligible, you must be married and file joint taxes. One spouse must still earn enough to cover both their own contributions and contributions to the spouse’s separate IRA. For example, in 2022, those younger than 50 can contribute up to $6,000 to an IRA; those 50 and older can contribute $7,000 to an IRA. This means that an earning spouse under age 50 needs at least $12,000 in income to fully utilize the spouse’s IRA ($6,000 for contributions to their own IRA and $6,000 for their husband).

Spousal IRAs also offer tax advantages. Depending on income levelsa couple can choose a traditional IRA, which allows them to reduce their taxable income now, or use a Roth IRA, in which they contribute after-tax income but can withdraw money tax-free in the future.

It’s good if the earning spouse is covered by a pension plan at work, but this can affect the amount of your contributions you can subtract from your taxable income. For example, if you’re married, filing jointly and covered by a retirement plan at work, your ability to take a tax deduction for traditional IRA contributions will phase out at $129,000 in adjusted gross income in 2022. The twist is that you can still contribute to a traditional IRA, you just don’t get a tax break for it. Those with an AGI of less than $109,000 can claim the full deduction; those who make more than $109,000 but less than $129,000 get a partial deduction. (For Roth IRAs, the numbers are different.)

For couples living with one income, spousal IRA funding should be standard to protect the non-earning spouse and better prepare for the future. In the worst case scenario, divorce occurs and the non-earning spouse has some retirement funds. At best, even more will be set aside for both in retirement.

Of course, family finances are a big reason why a spouse’s IRA can take a back seat. For many Americans, trying to balance the cost of living while keeping up with inflation while also saving for a child’s college education and perhaps to care for an aging parent can easily put retirement planning on the back burner.

Preparing for tenure is already a challenge for many in the US. In 2019, the average retirement savings account for Americans aged 55 to 64 was $134,000. Review of Consumer Finance. (The median was more optimistic at $408,000.) That figure is likely down because of the pandemic, when people may have put their money on hold or borrowed funds, and the recent market downturn.

However, most personal financial advice focuses on $1 million by retirement age, typically 65, which is a low benchmark for a comfortable retirement. That would mean $40,000 a year to live on if you apply 4% withdrawal rule.. Many people are nowhere near that number, even if they receive Social Security.

Regardless of whether you use a spousal IRA, at least one person must contribute to retirement. ​​​​​​While it is easy to abandon planning for the future in the name of caring for others and more pressing needs, you need to put on your own financial oxygen mask before helping others. There are loans your child can take out to pay for college, for example, but there’s no such thing as a loan to provide you with a comfortable retirement.

Therefore, couples who have the means to consider retirement should consider every tool at their disposal. And you don’t have to increase your spousal IRA contributions. Even contributions of less than the $6,000 or $7,000 maximum will be beneficial. Many partners will have to leave their jobs at one point or another—this should not prevent them from protecting their financial future.