Saying “I Do…” Has Its Benefits For Your IRA
By Sarah Brenner, IRA Analyst
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With the calendar well into May, wedding season has arrived in full force. You have probably heard the saying that marriage has its benefits. Well, this is especially true when it comes to the IRA rules. If you are married, you may have some IRA options that would not have been available to you if you had not taken the plunge and tied the knot. Here are 4 IRA benefits you may have if you are married.
1. Spousal Contributions
Generally, to make an IRA contribution, you must have compensation (typically W-2 income or net earnings from self-employment). If you are single and have no compensation, you are out of luck. However, a special rule applies for those who are married. You can use your spouse’s compensation to fund an IRA contribution. This is a great benefit if you are a stay-at-home parent. If your spouse has enough compensation, you and your spouse can each fully fund an IRA for the year. If you are age 50 or over this year, you can each contribute $6,500 to your respective IRAs for 2016.
2. Penalty-Free Distributions for a Spouse’s Needs
While your IRA is intended for your retirement, if you need money, you can take distributions at any time. In most cases, if you are under age 59 ½, those distributions will taxable and you will be subject to a 10% early distribution penalty. However, there are exceptions to the 10% penalty. Some of those exceptions take a spouse’s needs into consideration. You can take a penalty-free distribution to pay for deductible medical expenses. Those deductible medical expenses can include your spouse’s medical expenses. If you are unemployed, you can take a penalty-free distribution to pay for health insurance for your spouse. You can also take a penalty-free distribution to pay for your spouse’s higher education expenses. For example, if your spouse decided to go back to school to get a teaching degree, you could take a penalty-free distribution to pay her college tuition.
3. Smaller RMDS for Some IRA Owners
You must begin taking required minimum distributions (RMDs) from your IRA beginning for the year you reach age 70 ½. Usually an RMD is calculated using the Uniform Lifetime Table from the IRS. However, if you are married and your spouse is more than ten years younger than you and is the sole beneficiary of your IRA, there is a special rule. You calculate your RMD using the IRS Joint Life Expectancy Table instead. What is the benefit to you? Your RMD will be smaller. This can be an advantage if you do not need the money and want to avoid the taxable income.
4. Spousal Beneficiary Options
When it comes to inherited IRAs, sole spouse beneficiaries have options that are not available to non-spouse beneficiaries. If you are the beneficiary of your spouse’s IRA, and your spouse died before being required to take RMDs, you may be able to delay your RMDs from the inherited IRA for many years. As a sole spouse beneficiary, you also always have the option to rollover, transfer, or elect to treat the inherited IRA as your own. This option is never available to non-spouse beneficiaries.
As you can see there are significant advantages to being married when it comes to IRAs. Do you have questions regarding your own IRA? Consider consulting a knowledgeable financial advisor to better understand the IRA benefits that accompany a walk down the aisle.