Carla Fried: Minimize the cost of pandemic career interruption with a spousal IRA

Carla Fried, on

Published in Business News

Mothers with young kids bore the brunt of adapting to the stay-at-home, remote-learning demands of the coronavirus, leaving jobs at three times the rate of fathers, by one count.

The loss isn’t just current income. Retirement security is also at stake, with the loss of a workplace retirement plan (if you were fortunate enough to have one) and the loss of 2020 income to boost your Social Security earnings record.

Spousal IRAs

For some, a spousal IRA can partially make up for these losses. OK, if you’re up on your IRA rules you might be thinking, “Hey, but don’t I have to have earned income to contribute to an IRA?” Yes, and no.

The general rule is indeed that someone who contributes to their IRA must also report earned income on their tax return that is at least as much as the money they stuffed in their IRA.

But in a nod to spouses who do the work of keeping the family functioning — raising kids, caring for aging parents — that doesn’t come with a paycheck, the IRS allows contributing to a spousal IRA, based on the earned income of the working spouse.


Spousal IRA rules

There’s still time to contribute to a 2020 IRA. The deadline for all 2020 IRA contributions is May 17, 2021.

You must file a joint federal tax return. If you use the “married filing separately” option you aren’t eligible for a spousal IRA.

You can contribute based on the other spouse’s earned income. If you were younger than 50 in 2020 you can contribute up to $6,000. Over 50? Your annual contribution limit for the year is $7,000. (Those contribution limits are the same for the 2021 tax year as well.)


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