Non-Working Spouses and Roth IRAs

For many married couples, retirement planning has become not only a personal responsibility but a
financial necessity. Since Americans are living longer, retirement funding may need to span several
decades beyond the normal retirement age. When you consider the escalating costs of health care, the
uncertainty of Social Security and Medicare, and the pace of inflation, it is more important than ever to
explore tax-advantaged saving options that can fit into you and your spouse’s overall financial plan for
retirement. Let’s take a closer look at some of the benefits of a Roth Individual Retirement Account
(IRA). 

Roth IRA contributions are made on an after-tax basis from earned income only, and no income tax is
due when distributions are taken. Distributions from a Roth IRA are free of income taxes after the
account has existed for five years and you have reached age 59½. If you take withdrawals prior to age
59½, you may be subject to a 10% Federal income tax penalty. However, certain situations qualify as
exceptions, such as early withdrawals for qualified education expenses or first-time homebuyer
expenses.  

In addition to tax-free withdrawals, a Roth IRA has two other important features: 1) There are no
Internal Revenue Service (IRS) restrictions on when you must begin taking withdrawals (e.g., age 70½
with traditional IRAs), and 2) You can continue to contribute to a Roth beyond age 70½ if you have
earned income. Over the long term, this can lead to the potential for additional savings, especially if you
plan to work past age 70½, or if you have other sources of retirement income and do not expect to rely
heavily on your Roth IRA.

Who Is Eligible? 

While earned income is one of the requirements for opening up a Roth IRA, a married couple with only
one income may open and contribute to a Roth IRA under certain guidelines. The Roth IRA eligibility
rule allows married couples to make contributions, as long as at least one spouse has taxable earned
income from working and a joint tax return is filed. Under the IRS provision for married taxpayers filing
jointly in 2013 with one earned income, and who have $10,000 in modified adjustable gross income
(MAGI) or more, you and your non-working spouse can each contribute the maximum amount of
$5,500, or $6,500 (if you are both age 50 or older and have at least $12,000 in MAGI) to a Roth IRA.   

When a joint tax return is filed, the IRS regards a married couple’s income as joint income, even with a
non-working spouse. A married couple’s total income is considered to equally belong to each spouse.
Since both of you are joint recipients of the total income earned, you are both eligible to open a Roth
IRA in your own names. You can each contribute up to the maximum contribution limit of $5,500 (or
$6,500, if 50 or over) in 2013.  

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Income Limits
The Roth IRA income limits for a married couple filing a joint tax return with both spouses earning
taxable income are the same for a married one-income couple filing jointly. The adjustable gross
income (AGI) limit for maximum contributions is $178,000 or less for joint filers in 2013. If joint filers
earn between $178,000 and $188,000, the allowed contribution amount is phased out per IRS
guidelines. 

The Roth IRA is a retirement savings vehicle that may offer multiple advantages for one-income
married taxpayers, including tax-free distributions with no age restrictions. Be sure to consult your
qualified financial and tax professionals to determine what is appropriate for your unique
circumstances.