14 Jul Spousal IRA: What Military Spouses Should Know
A spousal IRA is something every military spouse should know about. A milspouse’s retirement savings usually comes second fiddle. I know this to be true from my financial coaching experience and from being a military spouse.
It’s not intentional. It happens because military spouses are often stay-at-home parents and, thus, don’t have an employer retirement saving plan. Or may not be currently working because of a Permanent Change of Station (PCS). Since the service member has the Thrift Savings Plan (TSP) and earned income, their retirement savings are more of the mind.
A spousal IRA is a Traditional or Roth IRA opened for a non-working spouse. Spousal IRAs give spouses with no or low earned income the chance to save for retirement.
If you file a joint tax return and have earned income, you may be able to contribute to an IRA for your spouse to increase the retirement savings for the year. Here’s what every military spouse should know about spousal IRAs.
Table of Contents
What Is a Spousal IRA?
An IRA is an Individual Retirement Account. A spousal IRA is an IRA opened for a spouse with little or no earned income for the year. It’s a regular IRA created in a non-working spouse’s name.
There’s no difference between a regular IRA and a spousal IRA. When people don’t have earned income, they can’t save for retirement in most types of retirement plans. Not starting early damages your ability to build wealth because of the power of compound interest. The earlier you begin saving for your collective retirement, the less you’ll need to save.
Eligibility for a Spousal IRA
To be eligible for a spousal IRA, you must file a joint tax return, and the working spouse must earn at least as much income as contributed to the IRA. Earned income is income received from working (W2 employee, self-employed income, bonuses, tips). For example, if you contribute $5,000 to your IRA and $5,000 to your spouse’s IRA, you need to have earned at least $10,000 for the year you contribute.
Assuming that you’re old enough to file a joint tax return, you can invest in an IRA. Currently, there are no age restrictions for traditional or Roth IRAs. You just would need enough earned income.
Contribution and Income Limitations
In the year 2022, the most you can contribute to an IRA is $6,000. If you’re over 50, then you may contribute $7,000.
There are no income limitations preventing you from contributing to a traditional IRA.
If you’re married and have a modified adjustable gross income (MAGI)* exceeds $214,000, you’re not eligible to contribute to a Roth IRA in 2022. The income limit for single individuals is $144,000 for 2022.
*MAGI = adjustable gross income (AGI) + student loan interest.
Traditional vs. Roth IRA
A traditional IRA is a tax-deferred retirement savings account. If you contribute to a traditional IRA today, you’ll lower your taxable income for the year. When you make a withdrawal in retirement, you’ll pay taxes on both the contributions and the earnings at your tax rate in the year you withdraw the money.
A Roth IRA is an after-tax retirement savings account. If you contribute to a Roth IRA today, you will pay tax on the contributions in the year you made them. When you make a withdrawal in retirement, you will pay no taxes! Not on the contributions (because you’ve done it already) or on the earnings!
More on IRAs: Traditional vs. Roth IRAs
Things to Consider When Deciding Between Traditional and Roth IRA’s
- Am I in a high or low tax bracket in the current year? Do I need this deduction to put me in a lower tax bracket? If so, then go with the traditional IRA.
- Do I expect my income to be higher in retirement than it is now? If yes, pay tax on that money TODAY when you’re in a lower tax bracket.
- What do I expect the tax climate to be like when I am in retirement? The future of taxes is a subject up to interpretation. You can read a lot of experts and get a lot of different answers. My take is that the U.S. currently is in a low tax environment, and we have A LOT of debt. So the government may need to increase taxes later to cover the cost of the national deficit.
- I want to remind you that only your base pay is taxable income (and some special pays) in the military. Your Basic Allowance for Subsistence (BAS) and Basic Allowance for Housing (BAH) aren’t taxable. Hopefully, what you’re earning today will put you in the lowest tax bracket of your life. If you made the same amount of money in the civilian world, you’d pay more taxes because all your income is taxable. If you stay in the military, you’ll get automatic pay increases in the form of year and rank increases. For this reason, I’m a HUGE fan of service members contributing to Roth IRAs for yourselves and your spouses.
More on military pay: How to Read a Leave and Earnings Statement (LES)
Frequently Asked About IRAs for Military Spouses
Here are some of the most asked questions and the answers about spousal IRAs.
Is My Contribution Tax Deductible?
It depends. The amount of the deduction (if any) will depend on whether the spouse with the higher earned income has access to a qualified retirement plan as well as your household income for the year. FYI, the TSP is a qualified retirement plan.
If your contributions are to a Roth IRA, they’re never deductible. It bears repeating that just because your TSP contribution may not be tax-deductible, you can still contribute to a traditional TSP. In this case, though, it would be better to seek a tax professional’s guidance.
When is the Contribution Deadline for the Year?
You can contribute to an IRA for yourself and your spouse up until the tax deadline for the year. Which is April 15.
What Can I Invest in my spousal IRA?
When it comes to IRA’s, the world is your oyster. It is easier to tell you about what you can’t invest in than to tell you what you can invest in. The following are not permitted in your IRA/spousal IRA:
- Life insurance
- Derivatives which derive their value from an underlying asset (options, futures)
- Antiques & collectibles (exceptions include some types of collectible coins)
- Personal use real estate
What If I Have An Emergency And Need Money?
IRAs give you more flexibility than other types of retirement accounts. While I do not recommend taking withdrawals from retirement accounts, you should know your options if you find yourself in a crisis. With a Roth IRA, you can withdraw your contributions anytime, tax and penalty-free because you have already paid tax on that money. If you withdraw the earnings of your IRA before the age of 59 1/2, you will pay a penalty and tax on the money.
There are several situation-specific instances in which the IRS will allow you to withdraw money penalty-free (traditional) or tax and penalty-free (Roth). If you have money in an IRA and need it, you may want to call a tax expert.
How and Where to Open an IRA
There’s a Chinese proverb that I love that says, “the best time to plant a tree was 20 years ago. The next best time is now.” Starting to save more money for retirement through a spousal IRA is one of the best things you can do for your future. If you’d like to increase your retirement savings by opening an IRA for your spouse, you can do so at most financial institutions, banks, credit unions, and brokerages—both online and in-person.
Here’s the Bottom Line
Military spouses need to save for retirement too. Spousal IRAs are a valuable tool to help spouses of service members save for their future—and their families.
Want to learn more about personal finance in the military? Check out and subscribe to the latest episodes of the Military Money Show below. You can also follow me on Twitter @FinanceLacey and @MilMoneyShow or on Facebook @TheMilitaryMoneyExpert and @MilMoneyShow.
If you want to “kickstart” your finances in the military, you can get access to my free Financial Kickstart Kit here.