Do you want to save for retirement, but don't have the income to do it on your own? A spousal IRA may be the perfect solution for you! In this article, we will discuss the benefits of a Spousal IRA, as well as the fees and requirements.
We will also provide a complete guide on how to open a Spousal IRA. So whether you are just getting started or are looking to switch providers, this blog post has everything you need!
Spousal IRA: Benefits, Fees & Everything You Need to Know Table of Contents
What is a Spousal IRA?
A Spousal IRA is an individual retirement account that allows a working spouse to contribute to their non-working spouse's retirement savings. Contributions can be made even if the non-working spouse does not have any earned income.
How Does a Spousal IRA Work?
A Spousal IRA is an Individual Retirement Account (IRA) that is established for the benefit of a married couple. The account is set up so that each spouse can make their own contributions and take advantage of the tax benefits associated with an IRA.
There are two main types of Spousal IRAs: Traditional and Roth. With a Traditional IRA, you contribute pre-tax dollars and your earnings grow tax-deferred. With a Roth IRA, you contribute after-tax dollars and your earnings grow tax-free.
How to Get a Spousal IRA
If you're married and have a working spouse, you can open a spousal IRA. A spousal IRA is an account that lets you save for retirement even if only one spouse works. This is ideal for stay-at-home parents or spouses who do not have access to a workplace retirement plan.
To open a spousal IRA, simply contact a financial institution and set up the account. Be sure to designate it as a spousal IRA so that both spouses' names are on the account. Then, make contributions to the account just as you would with any other IRA.
What Are The Different Types of Spousal IRAs?
There are two different types of Spousal IRAs: Traditional and Roth.
With a Traditional IRA, you make contributions with money that has already been taxed. This means that when you withdraw the money in retirement, you will pay taxes on it then.
With a Roth IRA, you make contributions with money that has not been taxed yet. This means that when you withdraw the money in retirement, you will not pay any taxes on it.
Roth IRAs have some income limitations, so if your spouse makes too much money, you may not be able to contribute to one. But there are ways around this - more on that later.
What Are The Benefits of a Spousal IRA?
There are a few key benefits to setting up a spousal IRA. First, it can help you save on taxes. If you and your spouse both have earned income, you can each contribute the maximum amount to your own IRA. This could potentially double your tax savings.
Another benefit of a spousal IRA is that it can provide security in retirement. If one spouse dies, the other spouse can continue to receive the benefits of the account. This can be a vital source of support during difficult times.
Finally, a spousal IRA can help you build a stronger financial future together. By contributing to an account jointly, you'll be able to grow your assets faster and plan for a more comfortable retirement.
What Are The Disadvantages of a Spousal IRA?
The main disadvantage of a spousal IRA is the contribution limit. For 2022, the contribution limit is $6000. This may not be enough for some couples who want to save more for retirement. Another downside is that if one spouse has a much higher income than the other, they may not be able to contribute as much as they would like.
What Are The Best Spousal IRA Accounts?
There are a few good Spousal IRA providers out there. Here are some of the best:
Fidelity offers a wide range of investment options and has very low fees. They also have great customer service.
Vanguard is another great option for a Spousal IRA. They offer a variety of investment options and have very low fees. They also have excellent customer service.
Schwab is another top choice for a Spousal IRA. They offer a variety of investment options and have very low fees. They also have great customer service.
What Commissions and Management Fees Come With Spousal IRAs?
Now that we know what a Spousal IRA is, let's talk about some of the fees and commissions that come with them.
First, there are management fees. These are typically a percentage of your account balance, and they go to cover the costs of managing your account.
Second, there are investment fees. These include things like broker commissions and expenses associated with buying and selling investments within your account.
Finally, there are withdrawal fees. If you take money out of your Spousal IRA before you're 59½, you'll typically have to pay a penalty.
With all of these fees in mind, it's important to do your homework before opening a Spousal IRA so you know what you're getting into.
What Is The Minimum Amount Required to Open a Spousal IRA?
The minimum amount required to open a Spousal IRA is $20. This is the total minimum amount required to open an account and begin funding it.
However, there are also other fees associated with having and maintaining a Spousal IRA. These fees can include an annual maintenance fee, account setup fees, and/or transaction fees. All of these fees will be deducted from your account balance each year.
What Are The Eligibility Requirements for a Spousal IRA?
There are a few eligibility requirements for a spousal IRA. First, you must be married and file a joint tax return with your spouse. Second, you must have earned income from a job or business equal to or greater than the amount you contribute to your IRA. Finally, your spouse must not have an employer-sponsored retirement plan, such as a 401(k), available to them.
If you meet all of the above requirements, then you can open and contribute to a spousal IRA on behalf of your non-working spouse. The contribution limit for 2020 is $6000 ($ 7000 if you're 50 or older). And just like with a traditional or Roth IRA, the deadline for making contributions is April 15th of the following year.
How Much Can You Contribute to a Spousal IRA?
For 2022, the contribution limit for a traditional or Roth IRA is $6000. If you're 50 years old or older, you can contribute an additional $1000 catch-up contribution. So, if you and your spouse are both 50 years old or older, you can contribute up to $12000 to your combined IRAs.
What is The Spousal IRA Contribution Deadline?
The Spousal IRA contribution deadline is the same as the traditional IRA contribution deadline: April 15th of the following year.
What Are Some Alternatives to a Spousal IRA?
If you're not interested in a spousal IRA, there are other options available to you. You could open a traditional IRA or Roth IRA in your own name. Or, if you have a 401(k) through your employer, you may be able to do a rollover into that account.
There are also some non-IRA options, such as annuities and life insurance policies. These can be good choices if you're looking for tax-deferred growth potential and death benefits, respectively. However, they typically come with more fees than an IRA, so make sure you understand all the costs before investing.
How Does a Spousal IRA Compare to a 401k?
A 401k is an employer-sponsored retirement savings plan, while a Spousal IRA is an individual retirement account that allows married couples to make contributions on behalf of their non-working spouses. The biggest difference between the two is that 401ks have much higher contribution limits than Spousal IRAs.
For example, in 2018 the contribution limit for a 401k was $18,500, while the limit for a Spousal IRA was just $5500. This means that if you and your spouse both have 401ks, you can potentially save twice as much for retirement each year.
Another key difference is that 401ks often come with employer matching contributions, while Spousal IRAs do not. Employer matching contributions can be a great way to boost your retirement savings, so if your employer offers this benefit it’s worth taking advantage of it.
Finally, 401ks are typically subject to vesting schedules, while Spousal IRAs are not. Vesting schedules determine when you become fully entitled to the money in your retirement account, and usually involve a waiting period of several years.
This means that if you leave your job before you vest, you may not be able to keep all of the money that you’ve contributed to your 401k. With a Spousal IRA, on the other hand, you’re always 100% vested, which gives you more flexibility in terms of when you can access your retirement savings.
What Is The Difference Between a Traditional IRA & a Spousal IRA?
There are a few key differences between traditional IRAs and spousal IRAs. First, with a traditional IRA, you are the account holder and are responsible for all contributions and distributions. With a spousal IRA, your spouse is the account holder and is responsible for all contributions and distributions.
Secondly, with a traditional IRA you can contribute up to $6000 per year (or $5000 if you're 50 or older), whereas with a spousal IRA your contribution limit is joint - meaning you and your spouse can each contribute up to $6000 per year.
Finally, traditional IRAs have no income restrictions, whereas spousal IRAs do - meaning that if your household income exceeds $196000 per year (or $98000 if you're filing taxes separately), you are not eligible to contribute to a spousal IRA.
When Can You Withdraw Money From a Spousal IRA?
With a spousal IRA, you can withdraw money for any reason after you turn 59½. If you need the money before then, you’ll pay a penalty of ten percent plus taxes on the withdrawal.
There are some exceptions to the early withdrawal rule. For example, if you become disabled or need to cover certain medical expenses, you may be able to withdraw money from your IRA without paying the penalty.
You can also take what’s called a “hardship distribution” from your IRA in certain cases, such as if you face eviction or foreclosure on your home. To take a hardship distribution, you’ll need to prove to the IRS that you have an immediate and heavy financial need for the money and that you can’t pay for your need any other way.
If you withdraw money from your IRA before you turn 59½, make sure you know the rules and penalties before you do it. Withdrawing money early from your IRA can set you back financially, so it’s not something to do lightly.
When Should You Open a Spousal IRA?
You should open a Spousal IRA as soon as possible. The sooner you open one, the more time your money will have to grow. Plus, you'll be able to take advantage of any tax breaks that may be available.
Is It Easy to Switch to a Spousal IRA?
The good news is that it’s relatively easy to switch to a spousal IRA. You can do so by simply opening a new account with a different financial institution. This process can be completed in just a few minutes, and you’ll be able to keep your current IRA intact.
There are some things to keep in mind when switching to a spousal IRA, however. First, you’ll need to make sure that your new provider offers the same or better investment options as your old one.
Second, you may be subject to fees and penalties if you withdraw money from your old IRA before reaching retirement age. Finally, you’ll need to inform your employer of the change so that they can make the appropriate adjustments to your payroll deductions.
Overall, switching to a spousal IRA is a fairly simple process that can be completed in just a few minutes. However, there are some things to keep in mind before making the switch.
Be sure to research your options carefully and consult with a financial advisor if you have any questions. With a little planning, you can make the switch with ease and enjoy all of the benefits that come with it.
Can You Lose Money With a Spousal IRA?
The short answer is no. You can't lose money with a Spousal IRA. However, there are some risks involved with any investment, and you could end up losing money if the stock market crashes or if interest rates rise.
How Much Should You Contribute to a Spousal IRA?
The contribution limit for 2019 is $6000, just like it is for a traditional IRA. If you’re 50 or older, you can contribute an additional $1000 “catch-up” contribution. So if you and your spouse are both 50 or older, you can each contribute $ 7000 to your respective IRAs.
Does a Spousal IRA Earn Interest?
The answer to this question is a resounding yes! Any money that you contribute to your Spousal IRA will earn interest, which is why it’s such a great retirement savings tool. The interest that your account earns will be taxed at your marginal tax rate when you withdraw the money in retirement, but it can still provide you with a nice nest egg to supplement your other sources of income.
Do You Pay Taxes On a Spousal IRA?
The answer to this question is a bit complicated. Generally speaking, you will not pay taxes on your Spousal IRA contributions. However, there are some circumstances where you may have to pay taxes on the earnings in your account.
Here's a quick rundown of the taxation rules for Spousal IRAs:
- Contributions to a traditional Spousal IRA are tax-deductible (up to the contribution limit).
- Withdrawals from a traditional Spousal IRA are taxed as ordinary income.
- Contributions to a Roth Spousal IRA are not tax-deductible.
- Withdrawals from a Roth Spousal IRA are tax-free (if you meet the requirements).
As you can see, the taxation rules for Spousal IRAs can be a bit complicated. However, the general rule is that you will not have to pay taxes on your contributions (except for Roth IRAs).
What is a Spousal IRA Rollover?
A Spousal IRA rollover is simply the process of transferring money from one spouse’s IRA to the other spouse’s IRA. This can be done for any reason, but it’s often done when one spouse wants to consolidate their retirement accounts or when one spouse wants to take advantage of a better investment opportunity.