No matter how much you love your spouse, one thing you can't share -- at least legally -- are your individual retirement arrangements. By law, IRAs must be associated with just one person. However, being married does have several benefits related to IRAs that you can take advantage of to boost your retirement savings.
Separate Contribution Limits
Since each spouse has a separate IRA, married couples can effectively double their annual contribution to IRAs. For example, if the annual contribution limit is $6,000 per person, the husband can contribute $6,000 to his IRA and the spouse could contribute $6,000 to her IRA for a total of $12,000 contributed to tax-sheltered IRAs in just one year. In addition, assuming you qualify to contribute to a Roth IRA, you can further diversify your contributions by having one spouse make traditional IRA contributions while the other makes Roth IRA contributions.
Spousal IRA Contributions
If you don't work, you usually can't contribute to an IRA because you don't have earned income. However, the IRS makes one exception to this rule for married couples who file joint returns. For joint filers, the non-working spouse can rely on the earned income of the working spouse to qualify to make an IRA contribution. For example, if the working spouse earns $50,000, the non-working spouse can use that earned income to justify an IRA contribution.
One drawback of being married is that your spouse's participation in an employer plan can count against you. Generally, if you don't participate in an employer-sponsored plan, you can always deduct your traditional IRA contribution. However, if your spouse is covered, you can't deduct your traditional IRA contribution if your modified adjusted gross income exceeds the annual limits, even if you file separate returns. The IRS announces the updated limits each year in IRS Publication 590.
Spouse as Beneficiary
IRAs give you the ability to list someone as the beneficiary to inherit the account upon your death. Not only can you name your spouse, but when a surviving spouse inherits an IRA, she can treat it as her own rather than as an account beneficiary. This means that your spouse can combine the inherited IRA with her own IRAs after your death, and that she won't have to take required distributions from the account until she reaches age 70 1/2 years old.
- tax forms image by Chad McDermott from Fotolia.com