As long as one of you has taxable compensation, you may be able to fund a Roth IRA for yourself and/or for your spouse.

Most people know that in order to contribute to a Roth IRA, you have to have income.

But what most people don’t know is that if your spouse is a stay-at-home man or woman and you have an income, you can contribute up to the maximum contribution limit to a Roth for you and fund the maximum for your spouse—even if he/she doesn’t have income on their own!

A working spouse can provide the funds for both Roth IRAs if they have earned enough income to cover both contributions—if they meet income guidelines.

Income Guidelines

If you are married and file taxes jointly and your modified annual gross income (MAGI) is less than $208,000 or less for the tax year 2021, (under $206,000 MAGI for married filing jointly for the 2020 tax year), you may be able to fund two Roth IRA accounts—one for yourself, and/or one for your non-working spouse.

As long as you file a joint tax return, it doesn’t matter whether the funds come from your income, their income, or a combination of the two.

So, if you meet the income guidelines, how much can you contribute?

Roth IRA Contribution Amounts

The IRA contribution limit in both 2020 and 2021 is $6,000 per year, with an additional $1,000 allowed if you’re over 50—for each of you.

As an example, a couple over age 50 can contribute a total of $14,000—$7,000 into each Roth IRA—as long as one of them earns at least $14,000 that year.

What You Should Know

Keep in mind that a spousal IRA is not a joint account. In fact, there is no such thing as a joint retirement account at all in the tax code. IRA stands for Individual Retirement Account.

So even though you provide the money for your non-working spouse, they will actually have to open the Roth IRA for themselves. Or if your spouse already has a Roth IRA, they can deposit the annual limit into their existing account.

Other Advantages of Roth IRA Accounts

A Roth IRA is “after tax money” so you do not receive any upfront tax break, like you can with traditional IRA contributions. But, importantly, any gains or interest accrue tax-free.

After a Roth IRA has been in place for five years or longer, you can borrow or take principal from it without penalty no matter what your age is, making it flexible and more liquid than some investments. After you reach age 59-1/2, if you’ve had the Roth account for five years, you can withdraw any amount including gains or interest without penalty.

Unlike with traditional IRA or 401(k) accounts, no RMDs (required minimum distributions) are required from Roth IRA accounts. You never have to touch the money unless you want or need to. (Roth 401(k)s do require RMDs, but you do not have to pay income taxes on money withdrawn.)

You can leave Roth IRA accounts to your heirs tax-free. The only rule they must follow is to withdraw all the money and close the Roth account within 10 years of inheritance.

Questions about Roth IRAs? Please call Simon & Simon Financial in Louisiana at 985-900-2510. We’re happy to help!