The IRA is one of the most effective vehicles to help you prepare financially for retirement. The ability to contribute to an IRA is based on the individual’s “earned income”. If you are a stay-at-home member of a couple, you should know that you can also contribute to a traditional (before tax money), or Roth (after tax money) IRA to the maximum allowable contribution permitted based on the amount of your spouses “earned income”.
Non-working spouses were previously permitted to make a small IRA contribution ($250). But in 1997, the IRS altered the contribution amount so each half of a couple who files their income tax jointly, can contribute the same maximum amount.
If you are the non-working spouse and already had an IRA account when you were working, you can use that account to receive spousal IRA contributions, provided you keep Traditional and Roth IRA monies segregated. If you do not already have an IRA account, you can establish a new “Spousal IRA Account” now and still contribute the maximum amount for 2023, $6,500, by April 15, 2024. As long as at least one member of the couple is earning income, you can both contribute to your IRAs no matter how old you are.
If you are in the financial position to help your grown child or grandchild, you can gift the IRA contribution up to the maximum allowable amount for both your child and their spouse. This parental gift does not add to the recipient’s taxable income. If you leave your IRA to a child or grandchild as the beneficiary, that inheritance will stay out of probate.
As with all financial decisions, consult a professional before making any major changes to your finances.