Traditional IRA vs Spousal IRA: What are the main differences and advantages?
Individual Retirement Accounts (IRAs) play a central role in the retirement planning strategy of American households. These accounts offer significant tax advantages for those seeking to save for retirement, particularly as a complement to or in the absence of an occupational retirement savings plan such as a 401(k).
Among the various types of IRAs available, two options are sometimes confused: Traditional IRAs and Spousal IRAs. Yet their functions, eligibility criteria and benefits are quite distinct.
Traditional IRA: The classic formula
The Traditional IRA is an individual retirement savings account that allows contributions to be made with pre-tax income, thereby reducing taxable income for the current year.
The gains generated (interest, dividends, capital gains) from the investments are not taxed until withdrawn. It’s a tax-deferred growth mechanism that encourages long-term capital accumulation.
However, withdrawals made after age 59 and a half are taxed as ordinary income. Before that age, early withdrawals are penalized, apart from certain exceptions.
From age 73, Required Minimum Distributions (RMDs) must be made, imposing an annual minimum withdrawal schedule.
The Traditional IRA is open to anyone with taxable income, even if they are also covered by a 401(k) plan or Social Security benefits. However, deductibility of contributions depends on household income.
The Spousal IRA: A valuable exception for married couples
The Spousal IRA is a special provision that enables a spouse with no income, or very low income, to benefit from an Individual Retirement Account (IRA) thanks to his or her partner's income.
This is a particularly useful solution in families where one of the spouses stays at home, raises the children or is temporarily out of the job market.
The principle is simple: the working spouse can finance an IRA on behalf of the non-working spouse, as long as the couple declares their income jointly and the household income covers the total amount of the contributions.
But there is something important to note: Although funded by the active spouse, the account belongs entirely to the beneficiary spouse. This is a real recognition of his or her long-term financial autonomy, even without direct professional activity.
In short, a Spousal IRA is a means of accessing a Traditional IRA (or Roth IRA) for people who, in theory, would not be entitled to one. It is not, therefore, a separate type of IRA, but a special eligibility scheme.
Tax and contribution advantages of Spousal IRAs
The tax advantages of Spousal IRAs are identical to those of conventional IRAs. The inactive spouse can choose between a Traditional IRA (deductible contributions, taxable withdrawals) or a Roth IRA (non-deductible contributions, tax-free withdrawals), depending on the household income level.
In 2025, the contribution limit is $7,000 per person, or $8,000 if one or both spouses are age 50 or over, thanks to the catch-up contribution.
This means that a couple can contribute up to $14,000 or $16,000 a year to two separate IRAs, provided their overall taxable income allows it.
This ability to double retirement savings via two separate accounts represents a powerful lever for retirement planning, especially when you consider the long-term benefits of compounding.
Why the Spousal IRA is essential for retirement planning
The Spousal IRA is much more than a tax solution, it's a tool for financial inclusion. Too often, spouses without a regular income neglect their long-term financial security.
Yet Social Security benefits or a spouse's income are not always enough to guarantee a secure retirement, especially in the event of death, divorce or a change in professional situation.
Opening a Spousal IRA means actively preparing for your retirement, even without personal income. It also means offering your family greater financial stability in the future by better distributing sources of income at retirement age.
Which retirement strategy is right for your household?
The choice between a Traditional IRA and a Spousal IRA doesn't conflict. The Spousal IRA is a gateway to a Traditional IRA (or Roth IRA) when personal income is lacking or insufficient. For married couples with unequal incomes, it is a formidable planning tool.
In a global retirement planning logic, it is often wise to maximize both accounts. This makes it possible to double retirement savings while taking advantage of immediate (Traditional IRA) or deferred (Roth IRA) tax benefits, depending on household income and objectives.
By intelligently integrating the Spousal IRA into your retirement strategy, you can strengthen the security of each spouse and prepare for the future on a more balanced basis.
IRAs FAQs
An IRA (Individual Retirement Account) allows you to make tax-deferred investments to save money and provide financial security when you retire. There are different types of IRAs, the most common being a traditional one – in which contributions may be tax-deductible – and a Roth IRA, a personal savings plan where contributions are not tax deductible but earnings and withdrawals may be tax-free. When you add money to your IRA, this can be invested in a wide range of financial products, usually a portfolio based on bonds, stocks and mutual funds.
Yes. For conventional IRAs, one can get exposure to Gold by investing in Gold-focused securities, such as ETFs. In the case of a self-directed IRA (SDIRA), which offers the possibility of investing in alternative assets, Gold and precious metals are available. In such cases, the investment is based on holding physical Gold (or any other precious metals like Silver, Platinum or Palladium). When investing in a Gold IRA, you don’t keep the physical metal, but a custodian entity does.
They are different products, both designed to help individuals save for retirement. The 401(k) is sponsored by employers and is built by deducting contributions directly from the paycheck, which are usually matched by the employer. Decisions on investment are very limited. An IRA, meanwhile, is a plan that an individual opens with a financial institution and offers more investment options. Both systems are quite similar in terms of taxation as contributions are either made pre-tax or are tax-deductible. You don’t have to choose one or the other: even if you have a 401(k) plan, you may be able to put extra money aside in an IRA
The US Internal Revenue Service (IRS) doesn’t specifically give any requirements regarding minimum contributions to start and deposit in an IRA (it does, however, for conversions and withdrawals). Still, some brokers may require a minimum amount depending on the funds you would like to invest in. On the other hand, the IRS establishes a maximum amount that an individual can contribute to their IRA each year.
Investment volatility is an inherent risk to any portfolio, including an IRA. The more traditional IRAs – based on a portfolio made of stocks, bonds, or mutual funds – is subject to market fluctuations and can lead to potential losses over time. Having said that, IRAs are long-term investments (even over decades), and markets tend to rise beyond short-term corrections. Still, every investor should consider their risk tolerance and choose a portfolio that suits it. Stocks tend to be more volatile than bonds, and assets available in certain self-directed IRAs, such as precious metals or cryptocurrencies, can face extremely high volatility. Diversifying your IRA investments across asset classes, sectors and geographic regions is one way to protect it against market fluctuations that could threaten its health.
Author
Ghiles Guezout
FXStreet
Ghiles Guezout is a Market Analyst with a strong background in stock market investments, trading, and cryptocurrencies. He combines fundamental and technical analysis skills to identify market opportunities.
