Why You and Your Spouse Should Have Separate Roth IRA Accounts
Roth IRA accounts are popular methods of saving for retirement, regardless of whether you have a traditional IRA or a 401(k) currently set in place. The federal government allows for both you and your spouse to have an IRA account, as long as you meet the basic eligibility requirements before you contribute. Although you and your spouse might share your income together, it makes sense in most cases to have your own separate Roth IRA accounts that you can contribute to, just as IRA conversions make sense. Your income is one of the primary factors that can affect the amount you can contribute to the IRA, so it is better to have separate accounts if you and your spouse have different incomes. Before setting up your accounts, keep in mind that a Roth IRA has certain limitations in place based on your age as well as your income.
Income and Limitations
A Roth IRA is designed to help you prepare for retirement, and you can start withdrawing from your account at the age of 59 1/2. There are a few rules to know before you participate, which can also be the deciding factor when determining whether you want your own account or not. Each year, the federal government outlines income restrictions that determine your eligibility for participation in a Roth IRA. The amounts can vary year to year, so you will want to check this regularly.
If you or your spouse makes more than the restricted amount of income annually, then you cannot participate. In such cases, it makes sense for the other party to have a Roth IRA if they meet the requirements, while the other person can still take advantage of other types of retirement savings. You cannot both be account holders of the Roth IRA in such cases, even if the other party is the one who is contributing.
Another limitation is the amount of money that you and your spouse can contribute to your accounts within a calendar year. The amount can change every tax year, so it is important that you two keep tabs on this, and contribute as much as possible. Even if you cannot meet the maximum contribution amount, any cash utilized towards your retirement can help you in the future. It is also important to note that the contributions are not tax deductible, but the future withdrawals are not taxed.
Having a separate Roth IRA account from your spouse can also mean that you two should obtain information from different institutions. Banks or credit unions are popular ways to open a Roth IRA account because of the convenience. For more specialized services, you might consider the assistance of a financial advisor. This is especially helpful if you have more than one kind of retirement savings account, or if you own a business and need regular financial advice.
When to Combine Your IRA
Combining your Roth IRA account with your spouse only makes sense in a few circumstances. Having one account for each spouse can be beneficial if one of you is a homemaker, or if one does not make much money within any given tax year. If you are the sole breadwinner, then it can be beneficial to your spouse if you add him or her onto your Roth IRA account. Keep in mind that if the circumstances change, you might have to divide up the accounts in order to avoid penalties. The most common reason why you and your spouse should have separate Roth IRA accounts after sharing one is due to federal income limitations.
Did you Know?
The Roth IRA is a retirement account that is funded with post-tax income. You pay taxes on your income this year as you would during any year and invest the funds in the Roth. Since taxes have been paid before investing you never pay income taxes on those funds in the future.
