There are many financial advantages to getting married.
You might have access to higher quality health care thanks to a spouse's benefits plan. You may have increased borrowing power from pooling incomes, making it easier to buy a home. You could have a lower tax burden (unless you're both high earners, then it's often higher).
Marriage in the U.S. also unlocks an under-discussed retirement option: the spousal IRA.
Whether your employment situation changes because of layoffs or you're taking time off to care for a family member, return to school or just take a break, a spousal IRA offers a way to stay on track for a healthy retirement. Yet many people don't know it exists.
It can take the form of either a traditional or Roth IRA; the key difference is it's only available for married couples where one spouse elects to leave the workforce and is earning little to no taxable income.
Once the money is contributed into a spousal IRA, it belongs to the person whose name it's under. This means stay-at-home parents and those who leave the workforce temporarily have a way to protect their financial futures, especially in the case of a future divorce.
To be eligible, you must be a married couple and file joint taxes. One spouse must still earn enough to cover both their own contributions and the contributions for the separate spousal IRA.
For example, in 2022, those under 50 can contribute up to $6,000 to an IRA; those 50 and above can contribute $7,000 to an IRA. That means an earning spouse under the age of 50 needs an income of at least $12,000 to make full use of a spousal IRA ($6,000 for contributions to their own IRA, and $6,000 for their spouse's).
Spousal IRAs also offer a tax advantage. Depending on income levels, the couple could elect to do a traditional IRA, which allows their taxable income to be reduced now, or use a Roth IRA, in which they contribute post-tax income but are able to withdraw the money tax-free in the future.
It's fine if the earning spouse is covered through a retirement plan at work, but this could affect how much of your contributions you can deduct from your taxable income. For example, if you're married, filing jointly and covered by a retirement plan at work, then your ability to take a tax deduction from traditional IRA contributions phases out at an adjusted gross income of $129,000 in 2022.
The twist is, you can still contribute to a traditional IRA, you just don't get a tax benefit for doing so. Those with an AGI of less than $109,000 can take the full deduction; those more than $109,000 but less than $129,000 get a partial deduction. (The numbers are different for Roth IRAs.)
It should be standard for couples living on a single income to fund a spousal IRA in order to both protect the non-earning spouse and better prepare for the future. Worst case, there's a divorce and the non-earning spouse has some retirement funds. Best case, there's even more set aside for both in retirement.
Preparing for one's twilight years is challenging for many in the U.S. In 2019, the median amount that Americans aged 55 to 64 had in retirement accounts was $134,000, according to the Survey of Consumer Finances.
Yet most personal finance advice focuses on $1 million by the retirement age, usually 65, being a low-end benchmark to retire comfortably. This would mean $40,000 a year upon which to live if you apply the 4% withdrawal rule. Many people are nowhere close to this figure, even when supplemented with Social Security.
Couples with the means to be thinking about retirement should consider every tool at their disposal. And you don't have to max out contributions to a spousal IRA. Even contributions less than the $6,000 or $7,000 maximum will be advantageous.
Erin Lowry is a Bloomberg Opinion columnist covering personal finance.