One way married couples can lower their 2023 tax bill or increase their refund is by using a lesser-known retirement savings strategy for spouses – the spousal IRA. This allows a non-working spouse to open a separate Roth or traditional IRA in their name and make contributions, even if they do not have earned income. While this option is often overlooked, it can provide a current-year tax break and boost retirement savings for spouses who do not work outside the home. This is especially important for stay-at-home parents, as a significant portion of them are women.
For married couples who file jointly, the deadline to make 2023 IRA contributions for each spouse is April 15, assuming there is enough earned income for both partners. Traditional pretax spousal IRA contributions can offer a tax break for the year, depending on income levels and participation in workplace retirement plans. With income phaseouts for IRA deductibility and Roth IRA contributions, many couples wait until March or April to make deposits, making it a last-minute decision during tax season. The annual contribution limit for 2023 is $6,500, or $7,500 for savers age 50 and older, with an increase to $7,000 for 2024.
However, before making spousal IRA contributions, couples should consider other factors such as their financial goals and cash flow needs. Some couples may need the extra cash for living expenses or shorter-term goals, like funding a wedding. Additionally, contributing too much to pretax retirement accounts could potentially create a tax problem in the future, particularly with required minimum distributions and the impact on Medicare premiums. The decision on whether to make spousal IRA contributions depends on a variety of individual circumstances and goals, and should be carefully evaluated.
While spousal IRA contributions can be a valuable strategy for some couples, it is not a one-size-fits-all solution. It is important to consider other financial factors such as short-term goals and potential tax consequences before deciding to make contributions. Working with a financial advisor can help couples determine the best approach for their individual situation and ensure that their retirement savings strategy aligns with their overall financial goals. By taking advantage of lesser-known savings strategies like spousal IRAs, couples can maximize their tax savings and build a more secure financial future for retirement.
