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How to Save for Retirement Even When You’re Not Working


Just over half of U.S. households are currently “at risk” of not having enough savings to maintain their living standards in retirement, according to the Center for Retirement Research at Boston College. Studies and surveys indicate the outlook for women is especially worrisome. Among the reasons: Women earn less than men, on average, and are more likely to take time away from their careers to care for relatives.

But thanks to an often overlooked provision of the tax law, a non-working spouse can save up to $5000 a year in a tax-advantaged Individual Retirement Account.

“Most people miss out on this great benefit for a non-working spouse,” says Ed Slott, an IRA expert in Rockville Centre, N.Y.

They key is to set up a so-called “spousal” IRA. To qualify, you don’t have to have income. Provided your spouse has wages, commissions, self-employment earnings, or other forms of  income, you can contribute up to $5000 a year to such an account. (For a precise definition of “compensation,” see IRS Publication 590.) To qualify, a couple must file a joint return and the non-working spouse must be younger than age 70 ½.

Set up in the non-working spouse’s name, such an account would provide a way for a couple with taxable income of $10,000 or more to set aside up to $5000 each per year—or $10,000 combined—for retirement. Under the law, those who are age 50 or older can contribute an extra $1000 to these accounts—for a total of up to $6000 per person annually.

A non-working spouse can stash money in either a traditional IRA or a Roth IRA—or divide his or her contributions between the two.

With a traditional IRA, contributions are tax-deductible. But when the account owner withdraws money, he or she must pay income tax on the funds. In contrast, with a Roth, an account owner receives no tax deduction for contributions. But the money grows tax-free.

Not everyone can contribute to a Roth. Individuals with modified adjusted gross income of $122,000 or more and married couples who earn $179,000 or more don’t qualify.

Still, they can establish a traditional IRA and transfer, or “convert,” the assets to a Roth—a move that requires them to pay the income taxes upon transfer.

With a traditional IRA, there are no income limits on who can contribute. Married taxpayers filing jointly can deduct their full contribution unless a spouse is covered by a retirement plan at work. In that case, the deduction begins to phase out at modified adjusted gross income of $90,000—and is fully phased out at $110,000. For these couples, non-deductible contributions are permitted.


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About Encore

  • Encore examines the changing nature of retirement, from new rules and guidelines for financial security to the shifting identities and priorities of today’s retirees. The blog also explores news that affects retirement, from the Wall Street Journal Digital Network and around the web. Lead bloggers are reporter Catey Hill and senior editor Jeremy Olshan. Other contributors include The Wall Street Journal’s retirement columnists Glenn Ruffenach and Anne Tergesen; the Director for the Center for Retirement Research at Boston College, Alicia Munnell; and the Director of Research for Pinnacle Advisory Group, Michael Kitces, CFP.