You can still decrease your tax costs with a ‘spousal individual retirement account’ contribution

There’s still time to decrease your 2023 tax costs or enhance your refund with a lesser-known retirement cost savings technique for couples.

One requirement for specific retirement account contributions is “earned income,” such as salaries or income from a task or self-employment profits. But there’s an exception for single-income homes: the spousal individual retirement account.

A spousal individual retirement account is a different Roth or standard individual retirement account for the non-working partner– and it’s “often overlooked,” according to licensed monetary coordinator Judy Brown at SC&H Group in the Washington, D.C., and Baltimore location.

These accounts can offer a current-year tax break and increase retirement cost savings for nonearning partners. As of 2021, some 18% of moms and dads didn’t work beyond the home and most stay-at-home moms and dads were females, according to Pew Research Center.

“My recommendations to [nonearning] females would be ensure you’re at least doing that spousal individual retirement account,” stated Boston- based CFP Catherine Valega, creator of Green Bee Advisory.

Married couples who submit collectively have up until the federal tax due date– April 15 for the majority of taxpayers– to make 2023 individual retirement account contributions for each partner, presuming there suffices made earnings for the combined deposits.

Traditional pretax spousal individual retirement account contributions can offer a 2023 tax break, depending upon earnings and work environment retirement strategy involvement, discussed Brown, who is likewise a licensed public accounting professional.

With earnings phaseouts for individual retirement account deductibility and Roth individual retirement account contributions, numerous wait up until March or April for the previous year’s individual retirement account deposits. It can be a “game-time decision” while doing your taxes, Brown stated.

The yearly individual retirement account contribution limitation is $6,500 for 2023 or $7,500 for savers age 50 and older. The limitation increased to $7,000 for 2024, with an additional $1,000 for financiers age 50 and up.

However, “it doesn’t have to be all or nothing,” Brown stated. Even a $500 or $1,000 spousal individual retirement account contribution might offer tax cost savings.

While spousal individual retirement account contributions make good sense for some couples, there are other elements to think about before making deposits, stated CFP Laura Mattia, CEO of Atlas Fiduciary Financial in Sarasota, Florida.

For example, some couples require the additional money for living costs or shorter-term objectives, like spending for a wedding event, she stated.

Plus, excessive pretax retirement cost savings might produce a “tax problem” in the future, depending upon the size of your accounts and future needed minimum circulations, Mattia stated. Pretax withdrawals enhance earnings, which can impact Medicare Part B and Part D premiums, to name a few repercussions.

“It’s a puzzle and really depends on a lot of things,” she included.