By Dr. James M. Dahle, WCI Founder
One great financial benefit of being married is that the IRS allows a non-working spouse to contribute to an Individual Retirement Arrangement (IRA) using the working spouse's income. This is called a spousal IRA.
What Is a Spousal IRA?
A spousal IRA is not a joint account. The first letter of IRA stands for INDIVIDUAL. Retirement accounts always belong to a single person.
Other than the source of income from which the contribution is made, a spousal IRA is exactly the same as any other IRA. The 2022 contribution limit is the same—$6,000 ($7,000 if 50+). It can be made to a traditional or Roth IRA. Income limits for traditional IRA deductibility and direct Roth IRA contributions are exactly the same. If income is too high, the Backdoor Roth IRA process can still be employed to contribute indirectly to a Roth IRA.
How Does a Spousal IRA Work?
While not usually an issue in the WCI community, the working spouse must generate enough taxable income to “cover” both contributions, so $12,000 if both spouses are under 50 and up to $14,000 if both are over 50.
The most unique spousal IRA rule is that the couple must file their taxes jointly to make the contribution. You cannot file Married Filing Separately (MFS) AND make a spousal IRA contribution. This rule is where white coat investors can occasionally get burned. Some doctors going for student loan forgiveness employ an MFS strategy to minimize IDR payments and maximize forgiveness. Realize those strategies eliminate the ability to make IRA contributions for your spouse.
The Nitty-Gritty
In 2013, Kay Bailey Hutchison, a Republican US senator from Texas from 1993-2013, had her name attached to the Internal Revenue Code section 219(c). This section allows for spousal IRA contributions. She was apparently a big proponent for stay-at-home spouses to still save for retirement even if they didn't have earned income. Want even more trivia? Her first marriage (two years) was to a medical student, and she serves as an honorary board member of the Multiple Myeloma Foundation.
According to IRS Publication 590-B, except under the “Kay Bailey Hutchison IRA Contribution Limit,” each spouse figures their IRA contribution amount based only on their own earnings, even in community property states where IDR payments are calculated using half of the household income. However, if you are filing MFS, the “Kay Bailey Hutchison IRA Contribution Limit” does not apply. Now, your contribution may be limited by your income. If you made less than $6,000, you cannot make a full $6,000 contribution.
Let me say that again because it is important:
If your spouse does not work and you file MFS, you just gave away the ability to do a spousal IRA contribution.
Traditional IRA Deductibility for Married People
IRA deductibility rules get really complicated when you're married. They depend on income (technically, Modified Adjusted Gross Income or MAGI); filing status; whether you lived with your spouse during the year; and whether you and/or your spouse has a retirement plan available at work, such as a 401(k). Here were the rules for the 2021 tax return that was filed in 2022:
- If neither of you has a retirement plan available at work, traditional IRA contributions are fully deductible for both of you.
- If you are filing MFJ, you do not have a plan at work but your spouse does, then your ability to deduct an IRA contribution phases out at a MAGI between $198,000-$208,000.
- If you are filing MFJ and have a plan at work (whether your spouse does or not), then your ability to deduct an IRA contribution phases out at a MAGI between $109,000-$129,000.
- If you are filing MFS and lived with your spouse at any point during the year, if either you or your spouse has a plan at work, then your ability to deduct an IRA contribution phases out at a MAGI between $0-$10,000.
- If you are filing MFS, did not live with your spouse at any point during the year, and you have a plan at work, then your ability to deduct an IRA contribution phases out at a MAGI between $68,000-$78,000 (the same as a single person).
- If you are filing MFS, did not live with your spouse at any point during the year, and do not have a plan at work (whether your spouse does or not), then traditional IRA contributions are fully deductible to you.
Confused? I don't blame you.
Practically speaking, this is not a big issue for white coat investors. Most of us don't want a traditional IRA anyway. Even if you can deduct an IRA contribution now, you will likely want to make indirect (Backdoor) Roth IRA contributions eventually. The presence of IRA money that hasn't been transferred into a 401(k) or converted to a Roth IRA will cause those contributions (technically the conversion step of the process) to be pro-rated.
But keep in mind that if you do a Backdoor Roth IRA and that IRA contribution was partially or completely deductible, then the conversion step will be taxable. It all works out the same in the end (exactly the same as a direct Roth IRA contribution), but the tax forms will look a little different. Your deduction for the contribution will equal the taxes due on the conversion, assuming no gain (or loss) between the contribution and the conversion steps of the Backdoor Roth IRA process.
Direct Roth IRA Contribution Limits
Guess what else gets weird when you file MFS? That's right, whether you have to fund your Roth IRA directly or indirectly (i.e. through the Backdoor Roth IRA).
If you file MFJ, your ability to contribute directly to a Roth IRA phases out at a MAGI between $204,000-$214,000. However, if you file MFS, that ability phases out at a MAGI between $0-$10,000. Practically speaking, this means . . .
If you file your taxes MFS, you need to do your Roth IRA contribution indirectly (via the Backdoor Roth IRA process).
Roth IRA contributions are not affected by the presence of a plan at work or by whether you live with your spouse. It is all dependent on your filing status and income. Let me say it one more time because it's important:
If you file your taxes MFS, you need to do your Roth IRA contribution indirectly (via the Backdoor Roth IRA process).
Inheriting an IRA from Your Spouse
There are also some unique rules about inheriting an IRA from your spouse. In fact, inherited IRA rules are highly variable depending on your relationship with the previous IRA owner.
Unrelated to Previous Owner
Under current law (i.e. you inherited an IRA from someone who died in 2020 or later), you can “stretch” a traditional or Roth IRA for an additional 10 years of tax and asset protection. No withdrawals (i.e. Required Minimum Distributions or RMDs) are required during those 10 years, although many who inherit a tax-deferred IRA may wish to spread the withdrawals out over a few or even all 10 years. You can simply pull it all out 10 years after the death of the original IRA owner. No penalties apply, no matter your age, although you will pay taxes at ordinary income tax rates on withdrawals of any tax-deferred money. We'll call this Option 1.
Eligible Designated Beneficiary
If you are:
- The spouse of the deceased
- A minor child of the deceased
- Chronically ill
- Disabled, or
- NOT more than 10 years younger than the deceased
then you have two options. You can still take Option 1 and stretch out the IRA for 10 years with no RMDs. However, you also have what we will call Option 2. Option 2 is basically just applying the old Stretch IRA rules. You can start taking RMDs based on YOUR age. If you are very young, those can be very small, significantly smaller than the expected return on the investments in the account. In essence, the account can continue to grow, with tax and asset protection, for decades. The RMD for a 10-year-old is only about 1.4%.
Spousal Beneficiary
If you inherit an IRA from your spouse, you can take Option 1 or Option 2 if you like. However, you also have two more options:
- Option 1: Inherited IRA, stretch it up to 10 years.
- Option 2: Inherited IRA, start taking RMDs based on your own age.
- Option 3: Become the owner of the IRA yourself (no longer an inherited IRA). It then becomes subject to the same rules as your own IRA.
- Option 4: Transfer the IRA into your own IRA, 401(k), 403(b), or governmental 457(b). Again, the money then becomes subject to the same rules as contributions to the account you transferred the money into.
Which Option Should You Choose?
Option 1 is best for those who want to spend all the money in the IRA in the next 10 years. These withdrawals are not subject to the 10% penalty for withdrawing prior to age 59 1/2. Plus, you can still leave part or all of it in there for up to a decade for additional tax- and asset-protected growth. This can also be a great option if you are over 72 and do not wish to take out RMDs for as long as possible. If you inherited the IRA at age 75, you could leave the money in there until age 85 without having to take any RMDs.
Option 2 is best for those who do not want to spend all the money in the IRA in the next 10 years but want to spend some of it and are still under 59 1/2. You are required to start taking RMDs, but you can take more out if you like without penalty. If you only take the RMDs, you can stretch those tax and asset protection benefits out for decades. This can also be a great move if you are older than your spouse and do not wish to take RMDs. If you are already 72+ but your spouse isn't, you can delay the RMDs until your deceased spouse would have turned 72.
Option 3 is best for those who are young and have no desire to pull money out of the accounts for a long time. Be aware that this may be a bad option if you are currently doing Backdoor Roth IRAs and plan to continue doing them going forward. While inherited IRAs do not count toward the pro-rata calculation of the Backdoor Roth IRA process, it will count if it becomes your own IRA.
Option 4 is best for those who are still doing Backdoor Roth IRAs, those who want to simplify their accounts, or those who wish to roll the money into a retirement account with unique investments, such as the federal TSP or a self-directed individual 401(k).
You can also hedge your bets a bit. This is not an all or none decision. Some of the money can go into your own IRA/401(k), and some can go into an inherited IRA.
Successor Beneficiaries
Ever wondered what happens if you inherit an inherited IRA? You are then considered a “successor beneficiary” (not a contingent beneficiary, who inherits the IRA if the original beneficiary dies before or with the original owner). What happens then? One of three things:
- If the inherited IRA owner died prior to 2020, you have 10 years to withdraw the money from the IRA.
- If the inherited IRA owner died after 2019 and was an “eligible designated beneficiary,” you have 10 years to withdraw the money from the IRA.
- If the inherited IRA owner died after 2019 and was not an “eligible designated beneficiary,” you must withdraw the money within 10 years of the death of the original account owner.
The Bottom Line
Spouses have special privileges when it comes to IRAs. However, the rules surrounding these privileges can be complex. Make sure you understand them so you can optimize your own situation.
What do you think? What spouse-related IRA provisions have you taken advantage of in your life? Comment below!
The IRS may be changing the 10-year rule for inherited IRAs. Non-spouse heirs may now be required to take RMDs based on their own life expectancy.
https://www.kiplinger.com/retirement/inheritance/604567/if-you-inherited-an-ira-recently-you-could-be-in-for-a-mess
Thanks for the heads up. There are always potential changes, but I never change my plans until changes become law because so many potential changes never do. This wouldn’t be too bad of a change unless the surviving spouse lived much longer.
Inherited non-spousal IRA.
There has reportedly been an updated IRS publication this year that “clarifies” the requirement to take RMDs. Likely as part of the updated life tables.
At least that’s what 2 professional money manager folks have now told me. Still have to zero out within 10 years, RMDs are required every year. Possibly even year 1 if no RMDs had been taken by the individual you inherited the IRA from
Thanks. You’re right about there being new tables. Here’s the pub: https://www.irs.gov/pub/irs-pdf/p590b.pdf
Basically, the size of RMDs went down slightly due to longer life expectancies.
But I’m having trouble finding anything saying an RMD has to be taken during those first ten years. Here’s what I’m reading on page 11:
Payment under the 10-year rule. If the IRA owner dies
before the required beginning date and the 10-year rule
applies, no distribution is required for any year before the
10th year.
I have a W2 job. My husband is an independent contractor with a solo 401K. Can he also do a traditional IRA and deduct it for tax purposes?
Thanks!
No, but he can do a Backdoor Roth IRA.
https://www.whitecoatinvestor.com/backdoor-roth-ira-tutorial/
This, of course, assumes your combined income (MAGI) is more than $109K.
Is he precluded because of his own solo 401k or because of some combination of income and possible spousal access to retirement accounts? I assume the former but came here to ask a similar question and want to double check.
If you have your own plan at work and make more than $109K MFJ MAGI, you can’t deduct your IRA. A solo 401(k) is “his own plan at work.”
My wife currently does not work but has an IRA from a previous job. Is there a way she can transfer the funds from her IRA so she can do a spousal backdoor Roth?
She would ostensibly need a destination that could accept the rollover from her IRA. Old 401k or similar could work. She could also get enough of a side hustle to open a solo 401k. Or just bite the bullet and do the taxes on conversions if not too onerous. Last, keep it traditional for filling of the lower tax brackets in retirement or in case congress changes the law retroactively to tax Roth accounts a second time.
Transfer them where? Is there a where? If not, then no. But she could convert them all to a Roth IRA and open that door.
She has no other retirement account besides her traditional IRA which she transferred her old 401k funds into. We would be paying too much tax to convert it into a Roth. She does do part-time contractor work currently (she’s an attorney), but she doesn’t get a retirement account from the firm.
Sounds like she won’t be doing a Backdoor Roth IRA to me.
Couldn’t she set up a solo 401k since she is a contractor, then transfer the IRA to the 401k?
I recently started staying home with our kids and am wondering how side gigs impact the spousal contribution.
If my side gig only makes $5000, am I able to contribute the $6000 maximum? Our household income is high enough to cover the $1000 difference
Your side gig doesn’t need to make anything to contribute $6K if your spouse makes at least $6K. It would affect a solo 401(k) contribution though.
I’m confused about successor beneficiaries. All of them have to withdraw within 10 years? I’m not grasping the differences. Thank you for the helpful article – I enjoyed the KBH trivia.
Yes.
My spouse (age 55) has started her own business but does not generate enough income to cover her backdoor Roth IRA (7k) and mine (6k). We are MFJ. I did not realize this was a requirement when doing a back door Roth for spouse until I read this post!!! and already did a backdoor Roth conversion process for 2022. What should I do?!! ( and no she will not be able to generate 13k of income this year through her business)
Adding on to my comment as clarification- our MFJ AGI for 2021 was above 300k so my income can fund the non-employed spouses IRA according to something I looked up on spousal IRAs on investopedia.com article March 2022. (See excerpt below).
Can you clarify? And if this is true , perhaps add this onto your backdoor roth tutorial (it was very helpful but didn’t delineate this finer point and you maybe assuming that all white coat investors have high earning spouses too). Thanks for everything you do. Your expertise is very helpful!
KEY TAKEAWAYS
If one spouse has eligible compensation, that spouse can fund an IRA for the non-employed spouse as well as their own IRA.
Traditional and Roth IRAs have the same contribution limits but different eligibility requirements.
Each spouse’s IRA must be held separately. IRAs cannot be held jointly.
You’re fine. You have enough income to cover her IRA contribution. That article is exactly right. The second paragraph of this article says the same thing:
How Does a Spousal IRA Work?
While not usually an issue in the WCI community, the working spouse must generate enough taxable income to “cover” both contributions, so $12,000 if both spouses are under 50 and up to $14,000 if both are over 50.
The most unique spousal IRA rule is that the couple must file their taxes jointly to make the contribution. You cannot file Married Filing Separately (MFS) AND make a spousal IRA contribution. This rule is where white coat investors can occasionally get burned. Some doctors going for student loan forgiveness employ an MFS strategy to minimize IDR payments and maximize forgiveness. Realize those strategies eliminate the ability to make IRA contributions for your spouse.
Thank you for the response and apologies. I misread— and then panicked for the moment ! If we were to set up an individual 401k for her, can I contribute to her solo 401k or does she need to demonstrate her own business income to justify the 401k contributions up to 20,500 for calendar year 2022. I am looking into this because she has been out of the job market for ten years now and we have lost time building up her retirement as she stepped away to raise our twins. Thank you for everything !
She needs a business for a 401(k) and yes, only that income can be used to contribute. No spousal 401ks.
How are spousal IRA’s treated in regards to the 199A deduction? Like an HSA?
I don’t understand. What do you see as the connection between these accounts and the 199A deduction. I don’t see one.
https://www.kitces.com/blog/199a-qbi-deduction-production-taxable-income-limit-increase/
Any particular reason you posted that?
Yes.
IRA and HSA contributions are not deducted from your QBI. 401k contributions are.
Seems relevant.
Well that’s obviously true. Business expenses reduce Ordinary Business Income, so they reduce the QBI deduction that is based on OBI. A 401(k) contribution, at least the employer portion, is a business expense. An IRA contribution is never a business expense. An HSA contribution can be a business expenses if it comes from the business, in which case it would be deducted from QBI. If it is just withheld by the business and actually comes from the employee, then it wouldn’t be.