BOSTON (CBS) – I like Spousal IRAs. They are used for an unemployed or underemployed spouse, who are considered an “at home non-working spouse”, a term coined by Congress in its infinite wisdom.

This is an IRA funded for a spouse with little or no income by a working spouse with income. Their combined income must be at least equal to the amount contributed and they must file a joint tax return for the year the IRA is set up.

The IRA belongs to the non-working spouse and they can name a beneficiary and choose the investments.

For example, one parent is at home with the twins and he only works part time and earns $3,000. The other spouse earns $95,000. The “at home spouse” can set up an IRA for the maximum of $5,500 using their joint income.

There are a few more rules. If you make too much money the government will not allow you to set up that Spousal IRA. Eligibility is phased out once joint AGI (adjusted gross income) is between $178,000 and goes away once you reach $188,000.

You can set up a traditional IRA or you can use a Roth IRA. If the “at home spouse” is under 40, I would recommend using the Roth IRA. There are many good calculators online to help you figure out whether a current deduction or tax-free future income is the better deal. The younger you are the sweeter the deal for tax-free income.

Many couples are making some tough decisions about having one parent staying at home when their kids are little. Fifteen or so years out of the job market puts a big hole in their retirement planning.

If you use a spousal IRA for 15 years and contributed on average $3,000 a year you would have contributed $45,000 to the spousal IRA. Now if we assume an 8% return once you reach age 65 you could have over $400,000 in your nest egg.


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