O’Connor: Stuck at home? You still can have an IRA

Brian J. O'Connor
Detroit News Finance Editor

Valentine’s Day is nearly here and if you want to show your special someone that you really truly care about them, get them a Spousal Individual Retirement Account. If you have a spouse who doesn’t get a paycheck, this kind of IRA is the perfect way to say, “Honey, I want to make sure you have plenty of money in our golden years, even if I dump you and run off to the Caribbean with some gigolo/floozy.”

No, that’s (probably) not what you mean at all! What you mean is, “I want to add a retirement account to make sure you and I can afford to retire and live a carefree dream life of early-bird specials in a state without an income tax while I yell at the TV news.”

But when it comes to contributing to a tax-deferred retirement savings account, Uncle Sam says something different, and that is, “Get a job, sweetie.”

So, no paycheck, no IRA?

That’s because you can’t have an IRA if you don’t have a job, or at least earned income. And you certainly can’t contribute to a 401(k) without a job. If you don’t mind starting your own business, you can set up a 401(k) plan for you and your spouse, but other than that, your options for covering what the IRS calls “a non-working spouse” (their words, not mine) are to use a more complicated vehicle, such as certain types of life insurance. Or you can set up an investment account, but you’ll pay taxes immediately on your contributions and gains.

That means the relatively easy and simple IRA appears to leave out any stay-at-home partner who tends to the kids, cares for elderly parents or wants to prevent the severe separation anxiety that hits Misses Fluffy Whiskers.

But there is one little-known exception — as long as you’re married.

All you have to do is file your tax return jointly, and a spouse without earned income can contribute to what’s called a Kay Bailey Hutchison Spousal IRA. The only limit is that both spouses’ combined contributions to all their IRAs must be less than the total household earned income for the year. During 2016, that means you can go from putting up to $5,500 into just your own account (or $6,500 if you’re older than 50) to socking away as much as $11,000 or $13,000 as a couple.

Thanks for that, Kay!

Even better, you can set up that spousal IRA before Tax Day and deduct it from your 2015 tax return, as long as you meet the limit of earning less than $184,000, at which point the deduction phases out until it disappears completely at $194,000.

That means you can jump-start your retirement savings by investing as much as $26,000 right now — $13,000 (or $11,000) as your 2015 joint contribution, and another $13,000 (or $11,000) for your 2016 contribution. This might not be feasible for long-time married couples, but same-sex couples who were just recently able to marry can use this strategy to start shifting and simplifying their retirement accounts.

You also can contribute in the same way to a Roth IRA, which is where you make your contributions with after-tax cash but all your gains grow tax-free. The contributions limits for a spousal Roth limits are the same, and you need to have earned more than that in income. Just remember that you can’t contribute at all to a Roth if your joint income is $194,000 or more, and your allowable contribution starts to shrink when your income hits $184,000.

So grab that IRA paperwork and you can spend a romantic Valentine’s Day taking the first steps to make all your lovey-dovey retirement dreams come true. Just be considerate of the neighbors, and keep it down when you’re yelling at the TV.


(313) 222-2145

Twitter: @BrianOCTweet

Brian O’Connor is author of “The $1,000 Challenge: How One Family Slashed Its Budget Without Moving Under a Bridge or Living on Government Cheese.”