The Short Answer: Yes, You Need Separate IRAs
If you’re wondering whether you and your spouse should have separate IRAs the answer is pretty straightforward You don’t have a choice. IRAs can only be held individually – there’s no such thing as a joint IRA. But this limitation might actually be a good thing for your retirement planning!
As one financial expert put it, “An IRA cannot be held jointly by spouses It can only be held in one individual’s name” This isn’t just a preference – it’s how the accounts are structured by law.
Why IRAs Can’t Be Joint Accounts
Let me break this down for ya. Individual Retirement Accounts are exactly that – individual. The IRS designed these accounts specifically for one person. This is different from checking or savings accounts, which can be owned by more than one person.
Here’s why IRAs must be separate:
- Each IRA is tied to one person’s Social Security Number
- Contribution limits apply per person
- Required minimum distributions are calculated based on individual life expectancy
- Beneficiary designations are made by the individual account owner
The Benefits of Having Separate IRAs
Even though you can’t have a joint IRA, having separate accounts actually offers several advantages:
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Double the contribution limits: For 2023, each person can contribute up to $6,500 (or $7,500 if you’re 50+). With two separate IRAs, that’s potentially $13,000-$15,000 per year toward retirement!
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Different investment strategies: Maybe you’re more conservative while your spouse is comfortable with aggressive growth. With separate accounts, you can each choose investments that match your risk tolerance.
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Flexibility in retirement: Having separate accounts gives you more options for withdrawal strategies later.
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Simplified estate planning: Individual accounts make it clearer who inherits what.
Understanding Spousal IRAs
Now, a “spousal IRA” is something that people often get wrong. It’s still an individual IRA, but married couples can make contributions in a way that is different from other couples.
What is a Spousal IRA?
A spousal IRA allows a working spouse to contribute to an IRA for a non-working spouse. This is super helpful for families where one partner stays home with kids or isn’t employed.
For example, if you work and your wife doesn’t, you can contribute to both your IRA and hers, as long as:
- You file taxes jointly
- You have enough earned income to cover both contributions
- You don’t exceed annual contribution limits
Spousal IRA Rules for 2023-2024
The IRS has specific rules for spousal IRAs:
- Contribution limits: The maximum contribution for 2023 is $6,500 per person ($7,500 if 50+), increasing to $7,000 in 2024 ($8,000 if 50+)
- Income requirements: You must have earned income at least equal to the total contributions made to both IRAs
- Filing status: You must file your taxes as “married filing jointly”
- Ownership: The non-working spouse owns their own IRA completely
Traditional vs. Roth IRAs for Couples
You can choose between traditional and Roth IRAs when you set up separate ones. Each has different tax implications:
Traditional IRAs
- Contributions may be tax-deductible now
- Withdrawals are taxed as ordinary income in retirement
- Subject to required minimum distributions (RMDs) starting at age 73
Roth IRAs
- Contributions are made with after-tax dollars
- Qualified withdrawals are completely tax-free in retirement
- No required minimum distributions during your lifetime
For married couples, income limits for Roth IRAs in 2023 are:
- Full contribution allowed if MAGI is under $218,000
- Partial contribution if MAGI is between $218,000-$228,000
- No contribution allowed if MAGI exceeds $228,000
These limits increase in 2024 to $230,000-$240,000.
Real-World Example of Separate IRAs
John makes $125,000 a year at his job, and Maria stays home to take care of the kids. They can:
- Open a traditional IRA in John’s name and contribute $6,500
- Open a separate traditional IRA in Maria’s name and contribute another $6,500
- File taxes jointly, with John’s income qualifying both contributions
- Potentially deduct up to $13,000 from their taxable income
By using separate IRAs, they’ve doubled their retirement savings capacity compared to if only John could contribute!
What Happens to IRAs During Divorce?
Nobody likes to think about divorce, but it’s worth understanding how IRAs are handled if it happens. Since IRAs are individual accounts:
- Each spouse maintains ownership of their own IRAs
- Contributions made during the year of separation/divorce may be affected
- A divorce settlement may require transferring IRA assets between spouses
- Transfers under a divorce decree aren’t taxable if done correctly
Alternatives to Consider
While separate IRAs are necessary, there are other retirement savings options for married couples:
- 401(k) plans: If available through employers, these have higher contribution limits
- SEP IRAs: For self-employed couples
- Taxable investment accounts: Can be jointly owned for additional savings
Common Questions About Spousal IRAs
Can my wife contribute to an IRA if she doesn’t work?
Yes! That’s exactly what the spousal IRA provision is for. As long as you work and file jointly, she can have her own IRA.
How many IRAs can a married couple have?
There’s no limit! Each spouse can have multiple traditional and Roth IRAs, though total contributions across all accounts can’t exceed annual limits.
Can my wife and I have the same IRA?
No, IRAs can only be held individually. You each need separate accounts.
What are the income limits for a spousal IRA?
For traditional IRAs, there’s no income limit for contributions, but deductibility may be limited if either spouse has a workplace retirement plan. For Roth IRAs, contribution eligibility phases out at higher income levels.
Steps to Set Up Separate IRAs
If you’re convinced that separate IRAs are the way to go (which they are!), here’s how to get started:
- Choose a financial institution: Banks, brokerages, and robo-advisors all offer IRA accounts
- Select account types: Decide if traditional or Roth is better for each spouse
- Complete the paperwork: Each spouse will need to provide personal information
- Set up contributions: Consider automatic transfers for consistency
- Select investments: Choose appropriate investments based on your goals and risk tolerance
Final Thoughts
Having separate IRAs isn’t just a requirement – it’s a smart retirement strategy that maximizes your family’s savings potential. By understanding how to leverage both your and your spouse’s contribution allowances, you’re setting yourselves up for a more secure future.
Remember that retirement planning is a team effort, even when the accounts must be separate. Regular discussions about your retirement goals, contribution amounts, and investment choices will help ensure you’re both on the same page.
Honestly, I think the IRS got this one right. The individual nature of IRAs provides clarity, flexibility, and potential tax advantages that might be complicated with joint ownership.
So the next time someone asks, “Should my wife and I have separate IRAs?” – you know the answer is not just “yes,” but “you must!” And more importantly, you know why it’s actually better that way.
Now go open those separate accounts and start building your retirement nest eggs!
How do I convert my traditional IRA to a Roth IRA?
You can convert your traditional IRA to a Roth IRA by:
- You get money from a traditional IRA and put it into a Roth IRA within 60 days (the distribution check is payable to you). This is called a rollover.
- Trusteeship-to-trustee transfer: You tell the bank that holds your traditional IRA assets to send money directly to the trustee of your Roth IRA at a different bank. The distributing trustee may do this by writing you a check made out to the new trustee.
- Transfer by the same trustee: If you keep your traditional and Roth IRAs at the same bank, you can ask the trustee to move money from your traditional IRA to your Roth IRA.
A conversion to a Roth IRA results in taxation of any untaxed amounts in the traditional IRA. The conversion is reported on Form 8606, Nondeductible IRAs PDF. See Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs), for more information.
How much must I take out of my IRA at age 70 1/2?
Required minimum distributions (RMDs) must be taken each year beginning with the year you turn age 72 (70 ½ if you turn 70 ½ in 2019). The RMD for each year is calculated by dividing the IRA account balance as of December 31 of the prior year by the applicable distribution period or life expectancy. Use the Tables in Appendix B of Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs). RMDs are not required for your Roth IRA.
See the discussion of required minimum distributions and worksheets to calculate the required amount.