Can My Spouse Have a Roth IRA?

Can my spouse have a Roth ira? The answer is yes. Now you may think, well, hold it. My stay at home husband or stay at home wife, they don't have earned income, they don't have a small business, they don't have a W2, so they can't have a Roth IRA. The answer is wrong. They can. The IRS code has been built to protect that stay at home dad or stay at home mom, so they can have the same benefits of a Roth ira. Let's break it down. Now. In this short video, I want to give you the basics of how it works and how you can take advantage of the spousal Roth IRAs with some pretty cool strategies. I also want to give you some resources that you can use to study more on this, maybe some good books or some places to go to learn more about the strategy. It's a big topic, so let's jump into it. Now here's the basic rule. Easy schmeasy. So as long as the working spouse has at least 12 to 14,000 of earned income, enough to fund their Roth IRA and their spouse's Roth IRA, you're in business. That's right. The spouse does not have to have a W2 Schedule C small business earned income at all. They can rely on the earned income of the working spouse. Now that's the basic rule. But there's some cool strategies that go with this. First, we've got to talk about the front door and the back door first. The front door to the Roth party. You want to walk in the party, you don't want any problems. Well, the IRS has made the rule that if you make too much money, you, you can't play in the Roth party. There's a back door. I'm going to tell you about in a moment what the front door is. If you make more than $200,000 on that joint married filing tax return, it's approximately 200 grand, then you can't walk in the front door. You can't create a Roth IRA for yourself or your spouse even though they could normally do it if the earned income is too high, you cannot have a Roth ira, either one of you. So we want to go to the back door. And if again you make more than $200,000 even though you could do the Roth IRA, we got to think about the back door. Well, we got kicked out of the frat party at the front door. So we go around to the back and we wanted to get into the backdoor Roth IRA party. Now this is a three step process and you've got to make sure that your stockbroker, your financial institution, your self directed IRA custodian, whoever you're using, knows what you're planning to do. It helps so that the paperwork doesn't get jacked up. And you also want to make sure that you're accountant knows what the plan is because there's going to be some forms involved and you want to make sure everybody's on the same page. So if your spouse wants a Roth ira, you're going to first open a traditional ira. You'll say, mark, we make too much money. We can't have a traditional or a Roth ira. Oh, you can have a traditional ira, it's just non deductible. And no one in their right mind would normally open up a non deductible traditional ira. Except you're going to follow two more steps. Step two, you're going to open up a Roth ira, put no money in it. You're just going to open up a Roth IRA with $0. And step three, you're going to do a Roth conversion. And you're going to convert the non deductible traditional IRA to a Roth ira. You have just got in the back door. You ended up with a Roth IRA because they're non deductible anyway. And you did it by doing a non deductible traditional IRA. So it's kind of this three step process and that's called the backdoor Roth IRA. Now I've got other YouTube videos on this and you can use it for the work spouse as well as the non working spouse. And that's why I bring it up is you can have a boy. Can we say this a backdoor spousal Roth ira? What? Yes, you can do it. And it's pretty cool. And that's the way you get into the party if you make too much money. Now the third strategy that's kind of unique is we'll have clients that say, hey, I want a Roth IRA. And Roth IRAs are pretty cool. You do the math. The longer you can build a Roth IRA the better. And so clients will start doing conversions, they'll do chunking. And I've got again other videos and topics on this where we talk about converting the traditional IRA and pieces over to a Roth ira. You can do it at any age and at any income level. But a lot of times my clients don't want to pay the tax on the conversion. And I go, well, have you funded a spousal Roth IRA yet? And they're like, no, I Couldn't do that. Yes. So now it may only be six or $7,000, but it's a start. So what you can do is again, instead of chunking and paying the tax on converting some of your traditional IRA to Roth and you previously haven't funded your spouse's Roth ira, go through the steps and open up a spousal Roth IRA either through the front door or the back door. Now you've just gotten 7,000 a Roth without paying the tax of converting some of your traditional. Now you may be on a plan to convert a lot more in the future, but chunk at it. Use this spousal Roth IRA as part of the practice in the game to get as much Roth as you can. Fourth strategy. And I can't talk about spousal Roth IRAs without talking about self directing. And I just had a phone call with a client today that's like, Mark, we've been starting to study this and watch some of your videos on this. We never knew that our roth or traditional IRA or 401k for that matter, any tax preferred vehicle can be self directed. Which means you can invest it in what you know best, not just what your stockbroker is offering you. Which means your spousal Roth IRA could do lending, invest in a small business, buy real estate, buy super bowl tickets and sell them next year on StubHub. All sorts of cool self directed business strategies. Now if that's something you never heard about, it's been around for 30 years, 40 years, ever since Erisa was created. It's just Wall street doesn't tell you about this. Peter Thiel has a self directed Roth ira. Mitt Romney has a self directed Roth ira. And every time they bring it up, Wall Street's like, we don't want to talk about that. We want you just put your money in our stock brokerage account and we'll invest it for you. So, and I'm not saying Wall street products are bad, I'm just saying why don't you diversify a little bit. Invest in a little something you might know that's better happening on down the street in a little rental property or something like that. And your spousal Roth IRA could do it. Last strategy, the inherited spousal Roth ira. Now you may be a fan of Dateline and I'm not advocating that you take out your spouse in some elaborate scheme to knock them off, but I'm just saying if your spouse dies and you inherit, the Roth IRA rolls into your Roth IRA tax free. It's called the Spousal Roth inherited rollover ira. Mouthful, right? But they happen every day. So the beauty of this is for both sides of the party. Here again, making sure you're happy and loving and not ending up on Dateline. You want to make sure that you're investing and contributing to both spouses Roth ira. And one of us is going to die first. It always happens, right? So who's going to inherit the Roth IRA of the spouse that's deceased? That's a beautiful way to build again, more retirement earnings through a Roth IRA is knowing that you're ultimately hopefully going to inherit your spouse's Roth ira. As long as they make you the beneficiary. You might want to look into that too. In summary, lots of strategies to consider here. So be thinking about the spousal Roth ira. They exist. They're alive and well, they're cool. And if your accountant isn't talking to you about this, if you're not getting a strategy session with a good tax lawyer once a year, call us. We'd love to be of help. And we've got great reading material. Some of those resources, check it out. We've got directed ira.com an area where you can self direct. Set up your own Roth IRA, your spouse's Roth IRA, traditional IRAs, and invest in what you know best. Next. I love my partner's book, the Self Directed IRA Handbook, now in its second edition. Here's the website. Go check it out. Great book with lots of resources to study up on how to self direct. Finally, we have a Self Directed IRA summit this year in Phoenix during some of those winter months and you might want to get away. Come on down. And we also broadcast it virtually on a live webcast so you can watch it wherever you're at. And we go through, I think this year a day and a half of strategies and networking and ways to self direct your ira. So nice little resources you can study up on to help you better take advantage of the spousal Roth ira.