True or False-To open an IRA you need to have earned income. False.One exception to the rule -A spousal IRA lets couples save for retirement even if only one spouse works and has earned income.

History

The IRA became law in !974 under the Employee Retirement Income Security Act.The IRA initially allowed workers to save for retirement and take a tax-deduction for their contribution. But there was a catch. In order to open and fund an IRA each individual must have earned income.However, married women who were stay-at-home moms in 1974 weren’t considered “working.” Therefore, they were prohibited from saving for their own retirement. Finally in 1996, after several women senators fought to have homemakers be able to save the same full amount, the Spousal IRA became law.

What is a spousal IRA?

A spousal IRA is an individual retirement account to which a working spouse contributes to an IRA on behalf of a non working spouse who earns little or no income.By spouse I mean a married couple and that includes same sex married couples. It can be a regular IRA or a Roth IRA. So this is the exception to the rule that a person must have earned income in order to contribute to an IRA.

How spousal IRAs work

Spousal IRAs are just a typical IRA, but used by a person who's married. That is, each spouse can use traditional or Roth IRAs, or both. The key is that the working spouse must earn at least as much money as is contributed to all of the couple’s IRAs.

Example

Say one spouse, Vicki, is a CPA and makes $150,000 a year. Her husband, Kevin, stays at home with their 2 children ages 2 and 4. Vicki, working spouse can contribute to her regular or Roth IRA, up to $6500 as of 2023, and can also contribute $6500 to Kevin’s regular or Roth IRA. If either is over age 50, they can contribute $7500 each to either their regular or Roth IRA. In our example , Vicki needs to earn over $13,000 to contribute $6500 to her IRA and $6500 to her husband’s IRA. She makes $150,000 a year so no problem. Vicki could easily contribute $7500 to each account if they were over age 50.

Spousal IRA rules to consider

• -The couple must file taxes as “married filing jointly.”

• -Your Adjusted Gross Income must be under $228,000 for tax year 2023 when filing taxes as “married filing jointly.”

• -A nonworking spouse can open either a traditional IRA or a Roth IRA.

• -The spousal IRA is not co-owned. It’s in the name of, and owned by, the nonworking spouse.So in our example Kevin would own the IRA (whether it is regular or Roth) that Vicki contributed to on his behalf.

• -There is no age limit on contributing to a Spousal IRA whether it is a traditional IRA or Roth IRAs.

Why do I bring up IRA’s and Roth IRA’s a lot?

1)In 2021, only 15% of US households that could contribute to an IRA did NOT contribute to an IRA or Roth IRA.

2)The #1 thing people regret at age 65 was not saving for retirement sooner.

Link to Ep.107: Why My Dad Wants To Marry Roth IRA's

https://www.dadsdaughtersanddollars.com/podcast-financial-independence/episode/1e08ea10/ep-107-why-my-dad-wants-to-marry-roth-iras