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Spousal Roth IRA

Chris Farrell Mar 24, 2010

Question: I spend most of my time as a stay-at-home mom, but I do earn about $3,000 a year through part-time work. My husband and I would like to maximize our Roth IRA savings. We contribute the full amount for him, but we’re unsure of the amount that we’re allowed to contribute in my name. Is it the amount of earned income, $3,000, or the full $5,000 that I would be allowed to contribute if I actually had no income and contributed to a spousal IRA? Christine, Charles Town, WV

Answer: I decided to check in with the tax experts at CCH. The bottom line: You can put aside $5,000 assuming you meet certain requirements. You are eligible for a spousal IRA since you earn less than the current annual $5,000 contribution limit to a Roth.

Here is the lengthier response from CCH that has all the tax caveats, twists, and turns. It reflects why I am such a big proponent of tax simplification. It’s also why we always say consult with a tax pro. The devil is in the details:

For 2009, if you file a joint return and your taxable income is less than that of your spouse, the most that can be contributed for the year to your IRA is the smaller of the following two amounts: (1) $5,000 ($6,000 if you are age 50 or older or (2) the total compensation includible in the gross income of you and your spouse reduced by your spouse’s contribution to a traditional or Roth IRA (see page 11 of IRS Pub. 590 for 2009). The IRA for the nonworking spouse or the spouse who earns less than the annual dollar limits is referred to as the spousal IRA. The couple can divide the total contribution any way they choose, provided that neither spouse receives more than the annual dollar limit in any IRA or combination of IRAs (Roth and traditional). Your question doesn’t say how much her husband earns, but if it’s a normal full-time salary (say $40,000 as an example) then the wife could contribute $5,000 (assuming she’s under 50). This also assumes that the couple is eligible to make a Roth IRA contribution (in 2009, income limit eligibility starts to phase out at $166,000 AGI for joint filers).

I would still consult with a tax pro on your own, but this is good guidance.

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