Spousal IRAs

What is a Spousal Individual Retirement Account (IRA)?
If you meet certain conditions, you can set up and contribute to an IRA (traditional or Roth) for your spouse, even if he or she receives little or no taxable compensation for the year of the contribution. Such an IRA is commonly referred to as a spousal IRA. A spousal IRA is not, however, a special type of IRA. It is merely a way of describing the fact that you are making a contribution to your spouse’s traditional or Roth IRA. To contribute to a spousal IRA, you must meet four conditions:

• You must be married at the end of the tax year
• You must file a joint federal income tax return for the tax year
• You must have taxable compensation for the year
• Your spouse’s taxable compensation for the year must be less than your taxable compensation

Taxable compensation includes wages and salaries, commissions, self-employment income, and taxable alimony or separate maintenance. It does not include earnings and profits from property (such as rental income, interest income, and dividend income), pension or annuity income, deferred compensation received, or any items that are excluded from income.

Example(s): You have taxable compensation of $80,000 for 2016. Your spouse has no taxable compensation. Assuming you file a joint federal income tax return and are married at the end of the tax year, you may be able to contribute up to $5,500 to an IRA in your spouse’s name ($6,500 if your spouse is age 50 or older). If you do this and are also able to contribute $5,500 to your own IRA ($6,500 if you are age 50 or older), your total IRA contribution for 2016 to the two IRAs can be as much as $11,000 ($13,000 if you are both 50 or older).

Tip: Members of the Armed Forces may include nontaxable combat pay as part of their taxable compensation when determining how much they can contribute to an IRA (their own or a spousal IRA).

Tip: Differential pay received by service members is considered compensation for IRA contribution purposes. Differential pay is defined as any payment which: (1) is made by an employer to an individual with respect to any period during which the individual is performing service in the uniformed services while on active duty for a period of more than 30 days; and (2) represents all or a portion of the wages that the individual would have received from the employer if the individual were performing services for the employer.

Technical Note: In 2013, Congress renamed the spousal IRA as the “Kay Bailey Hutchison Spousal IRA” in the Senator’s honor.

Traditional Spousal IRAs and Roth Spousal IRAs
If your spouse is under age 70½ and you meet the above conditions for spousal IRAs, you can contribute to a traditional IRA in your spouse’s name. All or part of your contribution to your spouse’s traditional IRA may even be tax deductible under certain conditions.

You may also be able to contribute to a Roth IRA in your spouse’s name if you meet the above conditions and your combined modified adjusted gross income (MAGI) for 2016 is less than $194,000 ($184,000 or less for a full contribution). Roth IRA contributions are never tax deductible, but withdrawals may be tax free under certain conditions.

If your spouse is age 70½ or older, you can make spousal contributions only to a Roth IRA. This is because traditionalIRAs do not allow contributions once the account owner reaches age 70½.

Tip: If eligible, you can contribute to both a traditional IRA and a Roth IRA for your spouse, as long as your total contributions to all of the spousal IRAs don’t exceed the limits described below.

How Much Can You Contribute to a Spousal IRA?
Unless your spouse is age 50 or older, you can contribute no more than $5,500 to a spousal IRA for 2016 (unchanged from 2015). To be more specific, the maximum amount that you can contribute to a spousal IRA for 2016 is the lesser of:

• $5,500 ($6,500 if your spouse is age 50 or older)
• The combined taxable compensation of you and your spouse, less any amounts contributed to your own traditional and Roth IRAs

Example(s): You have $6,500 in taxable compensation for 2016. Your spouse has $500 in taxable compensation for 2016. You contribute $5,500 to your own Roth IRA. The maximum amount that you can contribute to your spouse’s IRA (traditional or Roth) is $1,500.

If your and your spouse’s combined MAGI for the year is more than $184,000 (in 2016, $183,000 for 2015), your ability to contribute to a Roth IRA in your spouse’s name is limited, and phased out entirely if your combined MAGI in 2016 is $194,000 or more ($193,000 for 2015). If either you or your spouse is covered by an employer-sponsored retirement plan and your combined MAGI exceeds certain levels, your ability to make deductible contributions to a traditional IRA in your spouse’s name may also be limited (or phased out entirely).

^{Securities and advisory services offered through LPL Financial, a registered investment advisor, member FINRA/SIPC. The opinion voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Bush Wealth Management and LPL Financial are separate entities.}