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The Valentine’s Day Gift That Lasts a Lifetime: The Spousal IRA

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The future is getting more expensive, and advances in medicine and nutrition mean that we are living active lifestyles longer than ever. These are positive developments, but they also indicate that retirement is much more expensive and longer lasting than it was for past generations.

At the same time, pensions have largely been replaced by personal investments and IRAs. People have become responsible for their own retirement savings and often discover that their social security benefits will cover only a fraction of the necessary amount. To retire comfortably, it is necessary to have several sources of income, including personal investments and savings plans for you and your spouse.

Defining the Spousal IRA

Many people find that they quickly reach their IRA contribution limit and need to find another way to save enough money to ensure a comfortable retirement. A Spousal IRA allows a spouse who is not employed and does not have earned income to contribute to an IRA.  The caveat is that a married couple must file a joint tax return.  Yearly contribution levels are still capped at individual limits which are $5,500 or $6,500 for those over 50, but those levels may change. The IRS site provides up-to-date information on the most current contribution caps.

Restrictions on Spousal IRAs

While spousal IRAs essentially double the contribution levels for couples, they cannot be a joint account. The Spousal IRA must be established separately in the spouse's name only, using his or her social security number. After contribution, the money belongs to the spouse, which can be an important consideration in case of divorce or legal separation. Additionally, to be eligible to use the couple’s earned income, Spousal IRAs require a filing status of “Married, filing jointly.” One of the best tax benefits of a Spousal IRA is that contributors may see an increase in their tax deductions.

Determining the Cost of Retirement

A good rule of thumb when planning for retirement is to consider what it would take to replace 80 percent of your pre-retirement salary. The Spousal IRA is a useful tool for married couples to increase contributions and retirement plan balances.  Talk to an IRA specialist to learn more about spousal IRAs.

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