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Understanding Spousal IRAs

If you or your partner has taken time off from working, you can both still save for retirement with spousal IRAs.

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Many people leave paid employment to spend time on family responsibilities. It's important work, and it can come with a retirement plan: a spousal IRA.

Under current law, most couples can contribute up to $5,500 each to their IRAs for 2017 and 2018 as long as their combined compensation is at least $11,000 for the year in which contributions are made. This means that the spouse with lower or no compensation can contribute $5,500 to a retirement plan for 2017 and 2018. That amount goes up to $6,500 when that person turns 50, and the plan can be set up as either a Roth IRA or a Traditional IRA.

Spousal IRA contributions are reported to the IRS each year on your joint federal income tax return. If you or your spouse is covered by an employer plan, a contribution to a spousal Traditional IRA may be limited for a deduction from federal income taxes. If your spouse is covered by an employer plan, couples can take a full deduction if their combined modified adjusted gross income is below $186,000 (2017) or $189,000 (2018) and a partial deduction if it is between $186,000 and $196,000 (2017) or $189,000 and $199,000 (2018). If you are covered by an employer plan, couples can take a full deduction if their combined modified adjusted gross income is $99,000 (2017) or $101,000 (2018) and a partial deduction if it is between $99,000 and $119,000 (2017) or $101,000 and $121,000 (2018).

If you can deduct the Traditional IRA contribution, then you will pay taxes on the deductible contribution and earnings when you draw on them in retirement. If you can't deduct the contribution now, then you won't have to pay taxes on the non-deductible contributions in the future. If a couple's joint income is $196,000 (2017) or $199,000 (2018) or more, they are not eligible to make Roth IRA contributions under the spousal rules. IRA contributions can be made until the tax filing deadline for the year on April 15th (without extensions).

Even if you can't deduct the spousal IRA contribution, because your family income is too high or because you choose a Roth IRA instead of a Traditional IRA, consider making it anyway, to help provide for your family's financial future.

Neither State Farm® nor its agents provide tax or legal advice.


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