Individual IRAs Vs. Spousal IRAs
Congress introduced IRAs in 1974 to reduce people’s dependence on government programs and company pensions.
They’re a great way to minimize taxes and a great investment opportunity as well.
Spousal IRAs are not a different type, but rather an exception to the IRS’s Traditional or Roth IRA requirements.
Here’s what you need to know about the differences:
This program was started by the US government to encourage people to save more for the future.
It’s different from a 401(k). Most people think of an IRA as an “investment,” but it is actually just an investment tool that acts as a store for your other investments.
You can open an IRA at a bank or an investment company. Most IRAs can hold investments like mutual funds, stocks, and ETFs. They are typically of two types, “Traditional” and “Roth.”
Any money saved in a traditional IRA is tax-deductible. This means the more you save in a year, the fewer taxes you’ll owe for that year.
But when you decide to pull this money out at the time of retirement, the amount of withdrawal gets taxed according to the income tax rate in that particular year.
A Roth IRA—introduced in the 1990s—on the other hand, flips the tax benefit.
Instead of getting a tax deduction on the income, you pay it now, the capital gains, interest, and growth can be withdrawn tax-free after retirement.
Spousal IRAs are actually not very different from regular IRAs. Typically, you need an earned income to open an IRA, but spousal IRAs give married couples an exception for a non-working spouse.
As long as the working spouse’s income is underneath the IRA contribution limit, they can contribute for both spouses.
To sum it up, you are basically opening two IRAs—one for the working spouse and another for the non-working spouse.
And these can be of any type: traditional or Roth. Therefore, the contribution limits will be set accordingly and will be the same for any corresponding spousal IRA.
For instance, the contribution limits for most traditional and Roth IRAs for this year is $6,000.
This means that your total contribution to all of your IRAs, including spousal IRAs, cannot exceed a total of $12,000 unless you or your spouse is over 50 years old, in which case you can add $1,000 more.
Are Spousal IRAs A Good Idea?
Well, they are a great idea by all means. You can double your savings, and that’s the ideal route to take. Additionally, if it’s a Roth IRA, the doubled savings will be tax-free.
One thing to keep in mind is that if you are the contributing spouse, you are giving up the legal ownership of the money you contribute to your spouse’s IRA; it does not operate as a joint account.
Another excellent opportunity to look into as a couple is a Precious Metals IRA account.
This is a type of self-directed IRA that lets you invest in both precious metals as well as bonds. Get in touch with us, at Orion Metal Exchange, for more information on saving for your future.