Rosalind Evans
As the tax season approaches, many are scrambling to find ways to reduce their tax bill or increase their refund. Amid the myriad of strategies available, a certified financial planner sheds light on an often-overlooked method that promises to lower your 2023 tax obligations and bolster retirement savings for married couples. This strategy, known as the spousal Individual Retirement Account (IRA), offers a beacon of hope for households with a single income earner, providing a pathway to financial security in retirement.
Certified financial planner Judy Brown from SC&H Group highlights the significance of the spousal IRA, especially for the 18% of parents, predominantly women, who do not participate in the workforce, according to Pew Research Center data. “It’s often overlooked,” Brown asserts, emphasizing the importance of this retirement savings option for non-working spouses. The spousal IRA, which can be either a Roth or traditional IRA, is specifically designed for the spouse without earned income, allowing married couples to contribute to an IRA on behalf of the non-earning spouse.
Boston-based CFP Catherine Valega echoes Brown’s sentiments: “My advice to [nonearning] women would make sure you’re at least doing that spousal IRA.” This advice underscores the critical opportunity spousal IRAs offer for enhancing retirement readiness and financial well-being.
The mechanics of the spousal IRA are straightforward yet impactful. Married couples filing jointly can contribute to an IRA for each spouse by the federal tax deadline, provided sufficient earned income covers both deposits. Judy Brown, a certified public accountant, elucidates the potential tax advantages, pointing out that traditional pretax spousal IRA contributions can yield a tax break for the 2023 fiscal year, depending on the couple’s income and participation in workplace retirement plans.
However, the decision to contribute to a spousal IRA isn’t without its complexities. Laura Mattia, CEO of Atlas Fiduciary Financial, cautions that while spousal IRA contributions can be beneficial, they may not suit every couple. Factors such as immediate cash needs and the potential for creating future tax liabilities should be carefully weighed. “It’s a puzzle and depends on many things,” Mattia adds, hinting at the intricate balancing act between seizing immediate tax benefits and navigating long-term financial planning.
The spousal IRA stands out as a pivotal yet underutilized tool in the arsenal of retirement savings strategies. Offering tax savings today and securing financial independence tomorrow represents a dual advantage for married couples, particularly those with a single income. As the tax deadline looms, eligible couples must consider this strategy, balancing their immediate financial needs with their long-term retirement goals. The spousal IRA exemplifies the blend of strategic foresight and practical action necessary to achieve lasting financial well-being in the financial planning landscape.
