Spousal IRA

Marcus and Odile Kwan, a married couple who file jointly, ask Fenwick Securities to open a single joint traditional IRA so their retirement savings sit in one place. How should the representative respond?

1. A.A joint IRA is permitted for married couples filing jointly, with contributions limited to one annual maximumJoint filing status does not create joint ownership of a retirement account. No joint IRA exists.
2. B.A joint IRA is permitted only in community property statesCommunity property rules can affect spousal consent and division at death or divorce, but they do not permit joint ownership of an IRA.
3. C.A joint IRA is not permitted; each spouse must own a separate IRA, and each may name the other as beneficiaryCorrect. IRAs are individually owned by law, though a spousal contribution can be funded by the working spouse's income.
4. D.A joint IRA is permitted if the account is titled joint tenants with right of survivorshipJTWROS is a valid titling for a taxable brokerage account, but it cannot be applied to an IRA.

Why: An individual retirement account is individual by statute. It is established for and owned by one person, and the account owner's own earned income supports the contribution. Two people cannot own one IRA jointly. The couple may each open a separate IRA and name the other as beneficiary, and a working spouse's income can support a spousal IRA contribution for a spouse with little or no earned income, but the accounts remain individually owned.

Delphine Marchand earned no compensation last year, but her husband Aurelio earned 90,000 dollars at Vantry Foods and the couple files a joint return. Delphine, age 45, wants to fund a traditional IRA in her own name. Which statement is correct?

1. A.She may not contribute to any IRA, because IRA contributions require the account owner's own earned income.Wrong. Earned income is normally required, but the spousal IRA exception lets a jointly filing couple use the working spouse's compensation to fund the non-working spouse's account.
2. B.She may contribute only half the annual limit, because only one spouse in the household has compensation.Wrong. There is no halving. Each spouse's IRA may receive the full annual individual limit as long as combined contributions stay within joint compensation.
3. C.She may fund her own traditional IRA up to the same annual limit that applies to Aurelio, supported by the couple's joint compensation.Correct. Under the spousal IRA rules, a jointly filing couple may fund an IRA for each spouse using the earning spouse's compensation, subject only to the combined contributions not exceeding joint compensation.
4. D.She may contribute only after Aurelio has funded his own IRA to the annual maximum.Wrong. No sequencing rule exists. Aurelio's own IRA funding is irrelevant to Delphine's eligibility.

Why: A non-working spouse is not shut out of an IRA. When a couple files jointly, the working spouse's compensation supports contributions to BOTH spouses' IRAs, and each account may receive up to the same annual limit that applies to any individual. The only ceiling is that the two spouses' combined contributions cannot exceed the joint compensation reported on the return - not a problem when one spouse earns 90,000 dollars. Delphine's IRA is her own account in her own name; it is not a joint account and Aurelio has no ownership in it.