Many Americans, by choice or by circumstance, find themselves as the sole bread winner in their family. One spouse works while the other stays at home to take care of the family or look for work themselves. In either case, despite the financial situation, saving for retirement is still an important component of their personal finance plans. For couples in this situation, the tax code allows some special accounts that may provide benefits to qualified families.
A common strategy for families with one source of income is for that person to contribute to their 401k and also contribute the maximum to an Individual Retirement Account (IRA). The amount one contributes to the IRA varies based on income and the amount already contributed to a 401(k), but it cannot exceed $5,500 per year. The money contributed must come from earned income, except in the case of a family with only one source of income. In this situation, families can set-up a Spousal IRA in the non-working spouse’s name; an additional amount of money, up to $5,500, can be contributed to this account as well.
How does the Spousal IRA help? In addition to allowing the additional funds to grow in another account, the contributions to the Spousal IRA may provide additional tax benefits through the Retirement Savings Contributions Credit, also known as the Savers Credit. The Savers Credit is designed to provide cash back to lower income families. The most generous offers are for those families earning less than $34,500 as married couples, filing jointly. Any and all benefits disappear once the earnings exceed $57,500. The advantage with having the Spousal IRA is that the additional account in the spouse’s name can qualify for the same tax benefit via the Savers Credit as the primary earner’s IRA. In this unusual case, the family can receive two credits and save more money.
If your situation mirrors that of many, with a family living on a single spouse’s income, be sure to check into the Spousal IRA as a strategy for maximizing the amount of money you save for retirement.
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