Things to know about an individual spouse pension account

One of the basic rules for contributing to the individual retirement account is that you must have some “earned income” such as: B. Wage or salary from a job or income from self-employment.

But there’s a special exception, known as a spouse’s IRA, that allows you to contribute based on your spouse’s income if you file taxes together — and there’s still time to save for 2022.

“That’s probably what surprises people the most,” said certified financial planner Malcolm Ethridge, executive vice president of CIC Wealth in Rockville, Maryland.

For 2022, the annual IRA contribution limit is $6,000 for 2022 or $7,000 for savers aged 50 and over. The limit increased to $6,500 for 2023, with an additional $1,000 for investors aged 50 and older.

Ethridge said many clients don’t realize they can still make 2,022 IRA contributions until the federal tax return deadline, which is April 18 for most Americans.

According to Julie Hall, CFP at Vision Capital Partners in Ann Arbor, Michigan, many couples are unaware of spouses’ IRA contributions.

For example, a spouse may have experienced a layoff or taken time off from work to care for the family. “You can always keep saving,” she said.

For 2022, couples can still make combined contributions of up to $12,000 or $14,000 provided one spouse had at least that much taxable income for the year.

Roth IRA authorization depends on income and your deposits do not provide a tax benefit. However, you can still get a pre-tax deduction for IRA contributions provided you qualify based on income and participation in the company pension plan.

Of course, the decision to make pre-tax or Roth IRA contributions depends on more than just the current year’s tax break, Hall added.

Ethridge said many clients don’t realize that spousal IRA contributions are also possible when a spouse retires.

For example, it may make sense if one spouse wants to retire early and the other wants to continue working. In this scenario, the couple can make spousal IRA contributions out of the working spouse’s income, he said.

Depending on the age of the retired spouse, this may be an opportunity to replace some of what they retired for required minimum distributions. “There are many avenues to go,” he added.