The Spousal IRA: How to Invest While in a One Income Household
Do I have any stay-at-home friends out there wondering how to save for retirement?! If so, make sure you don’t sleep on the Spousal IRA! 💕
So many people don’t realize there is an option available to them to save for the future, build a family nest egg, and take advantage of tax-free growth even if they aren’t technically earning their own taxable income.
I don’t want you to leave any money on the table, so let’s take a look at another option to make sure you’re paid in the shade come retirement!
What is a Roth IRA
Before we dive into what the Spousal IRA is and how it works, let’s refresh our memories about our favorite account: the Roth IRA.
The Roth IRA is an individual retirement account (okay, technically “arrangement”, but we as a society have kind of taken over calling it “account”. I mean it DOES make more sense anyway, right?!)
You can open a Roth IRA with places like Vanguard, Charles Schwab, Fidelity, or whatever you like the best!
Then, once your account is open, you’ll fund the account, and that money gets invested.
Over time, your invested dollars start making money – and then THAT money makes money (the beauty of compound interest 🌈). It can really start snowballing - doubling, tripling, quadrupling and before you know it, you’re sitting on the beach in Tahiti (or at the very least secure in knowing that you’ve done the hard work of ensuring that you’re financially set for the future!).
The Roth IRA is my favorite for many reasons, but the main reason is the tax-free growth you get with your Roth IRA. When we invest money into a Roth IRA, we’ve already paid taxes on it, so when we go to take our money out someday, we won’t have to worry about paying taxes on ANY of the money!
YES, even the GROWTH does not get taxed. There’s really no such thing as free money, but this is about as close as we can get.
What is a Spousal IRA
The Spousal IRA is essentially just a Roth IRA with a fancy name.
Because the money that gets invested into a Roth IRA must be taxable income, this can exclude our friends who stay at home.
And while the spouses who are staying home are not earning what the government considers eligible income, they are working their butts off running an entire household and sometimes even keeping other humans alive! You get a standing ovation from me! 👏🏼
One method around that eligible income barrier is the Spousal IRA. With the Spousal IRA, the spouse earning income can contribute on the behalf of the spouse who’s staying at home.
This is great not only for you to continue funding your own retirement while you do all the - dare I say thankless work - that comes with maintaining a home and/or family, but great for the two of you as you’re able to take advantage of even more tax savings!
Spousal IRA Contributions
The Spousal IRA follows the same income and contribution rules as a Roth IRA or a traditional IRA. The only thing that’s different is you do not have to have your own earned income!
As long as you are married and filing jointly, your spouse can contribute the funds on your behalf.
It’s important to remember that income limits and rules for any IRA change year to year with new tax tables. You can check out the income limits for this year to make sure you and your spouse are all set!
How to Open a Spousal IRA
So how the heck do you open a Spousal IRA? The good news is that it’s super easy.
One of the biggest misconceptions with The Spousal IRA is that it’s a whole different account than a regular IRA. The Spousal IRA is not a different account, it’s more of a method.
The Spousal IRA is still an individual retirement account, so you’ll have to open your own IRA the same as you always would by going to Charles Schwab, Vanguard, Fidelity, wherever, and following the steps to open a Roth IRA (remember: you can’t share a Roth IRA with your spouse. It’s Individual). With the Spousal IRA, you will select spouse as the source of contribution, and voila! You’re taking advantage of the Spousal IRA to build your family nest egg.
Just remember that you must be married and filing jointly for your spouse to be eligible to contribute on your behalf!
Keep Earning!
So there you have it: The Spousal IRA! Even if you’re not earning taxed income (but doing a hella hard job), promise me you won’t sleep on this method. It will legit be a difference maker!
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