Why Stay at Home Parents Should Consider Spousal IRAs

By Britt Erica Tunick

For married couples who have more than one child it is not uncommon for one parent to stay at home and take time off from the work world. Unfortunately, for most people stopping work usually means that they stop contributing to their retirement savings as well.

Given the high cost of childcare in the United States, more and more couples with multiple children have one spouse take a leave of absence from their career in order to watch young children, as the cost of childcare often surpasses lost income. Absent a 401k plan or regular income, that usually means the retirement savings of the individual who is no longer working comes to a standstill, particularly since you need to have a job in order to open an IRA or to contribute to an existing one. There is, however, another option known as a spousal IRA.

Spousal IRAs allow someone who is working to contribute retirement savings on behalf of a non-working spouse, or a spouse whose income is minimal. As with traditional IRAs, it is possible to open either a traditional or a Roth IRA on behalf of a spouse –with taxes on the latter paid upfront, instead of at the time distributions are taken. There is also the added benefit of being able to take a tax deduction on any funds contributed in the same year.

As with traditional IRAs, a spousal IRA belongs solely to the individual whose name it is in. In order to make contributions, however, couples not only need to be married but they must also file joint tax returns.