Many couples in the United States plan for retirement together, even if only one spouse earns an income. The Internal Revenue Service (IRS) allows contributions to an Individual Retirement Account (IRA) on behalf of a nonworking spouse, using what’s commonly referred to as the nonworking spouse method or spousal IRA. This strategy helps households maximize retirement savings potential by allowing the nonworking spouse to build retirement assets even if they don’t have individual earned income. Understanding how the nonworking spouse method works, along with a clear example, is essential for married couples looking to optimize long-term financial security.
What Is the Nonworking Spouse Method?
Overview of Spousal IRAs
The nonworking spouse method allows a married couple filing jointly to contribute to separate IRAs for each spouse even if one does not have earned income. This rule enables both individuals to benefit from tax-deferred growth or tax-free growth, depending on whether the IRA is traditional or Roth. The working spouse’s income is used as the basis for both contributions, provided the household meets IRS rules on income and tax filing status.
Key Requirements
- The couple must be legally married and file a joint tax return.
- The working spouse must have income equal to or greater than the total IRA contributions for both spouses.
- Both spouses must meet IRA eligibility requirements regarding age and income limits (especially for Roth IRAs).
Annual Contribution Limits
Current IRS Guidelines
As of 2025, the annual IRA contribution limit is $7,000 per person for those under 50. Individuals aged 50 and older are allowed an additional $1,000 catch-up contribution, raising the limit to $8,000. Using the nonworking spouse method, a couple could potentially contribute a combined $14,000-$16,000 per year to two IRAs, assuming both are eligible.
Combined Contribution Example
Let’s say Jane is employed and her husband Alex is not. Jane is 45 and Alex is 52. They file taxes jointly. Jane can contribute $7,000 to her own IRA, and Alex can contribute $8,000 to his IRA (thanks to the catch-up provision). As long as Jane earns at least $15,000 in taxable income, they are within their limits.
Tax Advantages of Spousal IRAs
Traditional IRA Benefits
Contributions to a traditional IRA may be tax-deductible depending on the couple’s income and whether either spouse is covered by a workplace retirement plan. The earnings grow tax-deferred, and taxes are paid only upon withdrawal in retirement.
Roth IRA Benefits
Contributions to a Roth IRA are made with after-tax dollars and are not tax-deductible. However, qualified withdrawals in retirement are tax-free, including both contributions and earnings. This can be a powerful strategy for managing taxes in retirement years.
Example of the Nonworking Spouse Method
Scenario Breakdown
To understand the nonworking spouse method clearly, let’s walk through a complete example involving a fictional couple Emma and David.
- Emma, age 48, works full-time and earns $85,000 annually.
- David, age 51, stays at home and does not have earned income.
- They are married and file taxes jointly.
- Neither Emma nor David participates in an employer-sponsored retirement plan.
According to IRS rules, they can each contribute up to the IRA contribution limits:
- Emma can contribute $7,000 to her IRA (under age 50).
- David can contribute $8,000 to his IRA (age 50+, eligible for catch-up).
As long as Emma’s earned income ($85,000) exceeds the total contributions ($15,000), both contributions are allowed. Depending on their income and preferences, they may choose traditional IRAs, Roth IRAs, or one of each.
Tax Reporting and Compliance
Emma and David must report their contributions accurately on their tax return. If they choose traditional IRAs and are eligible, they may deduct some or all of the contributions. If they choose Roth IRAs, contributions are made with after-tax dollars and must be tracked for withdrawal purposes.
Roth IRA Income Limits for Nonworking Spouse
2025 Income Phase-Outs
Eligibility to contribute to a Roth IRA is subject to income limits based on Modified Adjusted Gross Income (MAGI). For a married couple filing jointly in 2025, the phase-out range begins at $230,000 and ends at $240,000.
- If MAGI is below $230,000: Full Roth IRA contributions are allowed for both spouses.
- If MAGI is between $230,000 and $240,000: Reduced Roth IRA contributions are allowed.
- If MAGI exceeds $240,000: Roth IRA contributions are not allowed; consider nondeductible traditional IRA instead.
Strategic Considerations
Early Retirement Planning
The nonworking spouse method is especially beneficial for families who want to build separate retirement accounts for each partner, ensuring both individuals have financial resources in retirement. This approach can also support estate planning goals and reduce long-term tax burdens.
Backdoor Roth Strategy
High-income households who exceed Roth income limits might consider making nondeductible IRA contributions for the nonworking spouse and later converting them to a Roth IRA a process known as the backdoor Roth IRA. This requires careful management due to potential tax implications and the IRS pro rata rule.
Common Mistakes to Avoid
Assuming Earned Income Isn’t Required
Many mistakenly believe the nonworking spouse can contribute to an IRA independently. In reality, the working spouse’s income must be high enough to cover both contributions. Earned income does not include rental income, dividends, or pension payments.
Neglecting Age-Based Catch-Up Contributions
If the nonworking spouse is age 50 or older, they are eligible for an additional $1,000 contribution, increasing the overall household savings potential. Couples often miss this opportunity by assuming uniform limits for both spouses.
Filing Separately Instead of Jointly
Filing taxes separately disqualifies couples from using the nonworking spouse method. Only joint filers may contribute to a spousal IRA.
Long-Term Benefits of a Spousal IRA
Increased Retirement Savings
By using the nonworking spouse method year after year, couples can accumulate significant retirement savings. Over time, compounded tax-deferred or tax-free growth can make a substantial difference in retirement readiness.
Improved Financial Independence
Maintaining a separate IRA for each spouse helps ensure both individuals have access to retirement funds. This can be particularly helpful in cases of widowhood, divorce, or differing retirement goals.
The nonworking spouse method provides a valuable way for married couples to enhance their retirement planning even if only one partner earns an income. By contributing to a spousal IRA, households can double their IRA contributions, take advantage of tax benefits, and build long-term financial security. Understanding the eligibility rules, income limits, and contribution strategies is essential. With proper planning and execution, the nonworking spouse method becomes a powerful tool for growing retirement savings and achieving greater financial independence in the future.