How Much Can a Non-Working Spouse Contribute to a Roth IRA?

A spousal IRA, also known as a Roth IRA or traditional IRA funded on behalf of your spouse, is a powerful tool to maximize retirement savings even if the spouse does not have taxable income. This article will delve into the intricacies of spousal IRAs, specifically how much a non-working spouse can contribute to a Roth IRA.

Understanding Spousal IRAs

A spousal IRA is not a separate type of account; rather, it is an IRA funded for your spouse through your earnings. It is particularly useful when one spouse is not working but both want to save for retirement. The key requirement is that one spouse must have earned income to contribute to the IRA on behalf of their partner.

IRAs and Contribution Limits

The annual contribution limit for IRAs, including Roth IRAs, is the lesser of:

$6,000 per year (or $7,000 if you are over 50 and a catch-up contribution applies)

To fund a spousal IRA, one spouse must contribute to the IRA using their earned income. This means that the non-working spouse can have zero earned income, but the working spouse can still contribute to the non-working spouse's IRA. This can significantly enhance both partners' retirement savings.

Contribution Requirements

There is no special 'spousal IRA' account type. The IRA is still an IRA in the name of the spouse receiving the contribution, backed by the income of the contributing spouse. The contributions are based on the rules and limits that apply to individual IRAs. As long as one spouse earns enough money to cover the total contributions, it doesn't matter which spouse is working.

Rules and Considerations

Income Verification: The contributing spouse must provide proof of earned income to ensure the contribution is valid. This can include W-2 forms, 1099s, or other financial statements reflecting their income.

Tax Implications: Contributions to a spousal Roth IRA are made with after-tax dollars, meaning the income used for contributions will be taxed. However, qualified withdrawals from a Roth IRA are generally tax-free, making them a favorable option for retirement savings.

Income Limits for Roth IRA Contributions: There are income limits for contributing to a Roth IRA directly. However, even if these income limits are exceeded, a backdoor Roth IRA strategy can still be used for contributions.

Backdoor Roth IRA Strategy

If you receive wages, you can contribute to a traditional IRA with no income limit. Afterward, you can convert the traditional IRA to a Roth IRA without income limits. This method is a workaround for high-income earners who might not qualify for direct Roth IRA contributions.

Case Study: John and Jane Doe

Let's say John, a full-time working spouse, makes $70,000 per year. Jane, his non-working spouse, makes no income. John can contribute up to $6,000 (or $7,000 if he is over 50) to Jane's spousal Roth IRA using John’s earned income. This contribution will grow tax-free until withdrawal in retirement, providing a substantial benefit in tax savings.

Conclusion

With the help of a spousal IRA, even a non-working spouse can significantly contribute to their retirement savings. By utilizing a working spouse's earned income, a Roth IRA can be a versatile tool for building a robust retirement fund. Understanding the rules and considerations, such as contribution limits, income verification, and tax implications, ensures that both spouses can make the most of this valuable financial strategy.