"Spousal IRAs: The Game Changer for Single-Income Married Couples"

In the ever-evolving landscape of retirement planning, one strategy stands out as a game changer for single-income married couples: the spousal IRA. This powerful tool allows non-working spouses to contribute to an IRA using the working spouse's income, effectively doubling the retirement savings potential for the household. Let's dive into how this strategy can revolutionize your retirement planning and why it's a must-consider for any couple looking to maximize their nest egg.

The Power of Spousal IRAs

A spousal IRA is a separate Roth or traditional IRA for a non-working spouse. This means that even if one spouse doesn't earn an income, they can still contribute to an IRA as long as the couple files taxes jointly. For 2024, the IRA contribution limit is $7,000, plus an extra $1,000 catch-up contribution for investors age 50 and older. This allows an older married couple with sufficient earned income to save up to $8,000 per IRA before the April 15 tax deadline. This is a significant advantage over other retirement savings options that may not allow for such high contributions from a single income source.



Tax Benefits and Future Growth

One of the most compelling reasons to consider a spousal IRA is the tax benefits it offers. Traditional IRA contributions could provide a tax break, depending on your income and workplace retirement plan participation. This upfront tax benefit can help reduce the couple's current tax liability, making it a smart move for those in higher tax brackets. Additionally, Roth IRAs, funded with after-tax dollars, offer future tax-free growth. This can be advantageous for couples who expect to be in a higher tax bracket in retirement, as it allows them to avoid paying taxes on their retirement withdrawals.

Leveling the Playing Field

Another perk of spousal IRAs is the ability to create or boost retirement savings for spouses who don't earn an income. This helps accrue retirement savings for the family CFO who may not be employed outside the home or is currently underemployed. In a divorce, it's often easier to split retirement accounts when the non-earning spouse has assets in their name, acknowledging their unpaid economic contribution to the household. This strategy can help level the playing field in these conversations and ensure that both spouses are financially secure in retirement.

Comparing to Other Investment Strategies

While spousal IRAs offer significant advantages, it's essential to consider other investment strategies and tax-efficient planning to maximize long-term financial benefits. For example, couples who both have a 401(k) can defer paying taxes on twice the amount of income. This can be more advantageous than a spousal IRA if both spouses have access to employer-sponsored retirement plans. Additionally, strategic tax planning and delayed Social Security claiming can increase portfolio longevity in retirement. For example, delaying Social Security benefits until age 70 can increase portfolio longevity by 1.86 years compared to claiming at age 62. This strategy, combined with tax bracket management and Roth conversions, can extend portfolio longevity by more than 5.63 years compared to conventional wisdom on spend-down strategies and claiming Social Security early.

Staggering Retirements for Maximum Benefit

Staggering retirements can also be a strategic move for couples. For instance, if one spouse continues to work while the other retires, the working spouse can continue to contribute to their IRA and delay claiming Social Security benefits. This strategy can help maximize retirement savings and delay the depletion of retirement assets. As noted, "When a spouse delays retirement, they can also delay taking other retirement-related benefits aside from Social Security. The couple can rely more on the income from the salary to meet their daily necessary living expenses instead of income from retirement accounts. This way, the couple can potentially put off using the money in their nest egg, which will allow their investments to continue to grow."

Conclusion

In conclusion, the spousal IRA strategy provides married couples with a powerful tool to enhance their retirement planning. By allowing non-working spouses to build retirement savings, couples can maximize their Social Security benefits and manage their tax liability more effectively. This strategy, combined with staggered retirements, can help couples achieve long-term financial goals and ensure a more secure retirement. So, if you're a single-income married couple looking to boost your retirement savings, consider the spousal IRA strategy—it just might be the game changer you've been looking for.