In reality, there’s no such thing as a spousal IRA, just a rule that allows you to rely on your spouse’s income when you contribute.
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As a general rule, your regular IRA contribution for any year can’t exceed your qualifying income for the year. But if you file jointly with a spouse who has qualifying income, you don’t need qualifying income of your own.
Special rule for spouses
If you’re married and you file a joint return, you can make a regular contribution to a Roth IRA even if you have little or no qualifying income. Solely for the purpose of determining how much you can contribute to an IRA, you’ll be treated as if you had taxable compensation income equal to:
- Your qualifying income (if any), plus
- Your spouse’s qualifying income (if any), minus
- Your spouse’s regular contributions to traditional IRAs and Roth IRAs.
For most people this rule works out very simply: if either spouse works for a living and earns at least double the IRA contribution limit, both spouses can contribute the maximum amount to an IRA.
Of course this rule doesn’t get you out of the other requirements. In particular, if the modified adjusted gross income on your joint return is greater than a specified level, the phase-out rules will reduce the permitted Roth IRA contribution for each of you.
Who contributes?
Some of the explanations of this rule would lead you to believe that the contribution has to come from the spouse with the qualifying income. That’s not a requirement. It’s OK if your spouse supplies the money, and it’s equally OK if you contribute your own money or get it from another source, such as a gift from a relative. The source of the money doesn’t matter.
What are the consequences?
The consequences of using this rule to make an IRA contribution are exactly the same as if you had your own qualifying income. It’s still your contribution and your IRA. There are no special rules that apply to spousal IRAs. The term spousal IRA seems to imply that you’ve created some special new animal, but it really means just one simple thing: you relied on your spouse’s qualifying income to make a contribution that would not have been possible based on your own income.
How about a joint IRA?
Some couples want to have a joint IRA for the two of them. Sorry, no can do. The “I” in IRA stands for “individual.” If you commingle your IRA with any other funds, including your spouse’s IRA, you disqualify it.