Spousal IRA's are the exception to the rule. As a general rule, an individual may contribute all of their taxable income up to $4,000 ($5,000 if over fifty years old) into an individual retirement account. There is an exception for couples who are married filing jointly. If one spouse has taxable income less than the contribution limit, they can use the couple's total taxable income to determine this limit.

The same basic rules apply to this configuration as to any other.

1. Determine the taxable compensation of the couple
2. Determine allowable IRA contributions, if you contribute to a pension plan
2. Subtract all IRA contributions of the spouse with the greater compensation

If the remaining amount is more than $4,000, the spouse with the lesser compensation can contribute up to $4,000 to an IRA. If the spouse is fifty or older the amount becomes $5,000. If it is less than $4,000, the spouse is limited to the remaining amount.

For example, Steve is sixty-one years old and did not work for a year. He recently started a new job and his income is $2000 for this year. Normally, Steve would be able to contribute $2000 into an individual retirement account. His wife, Lisa, is sixty years old and earned
$30,000 this year. Their total taxable income is $32,000. She has a vested interested in a pension plan at her job. Using the IRA deduction worksheet, she discovers that she can still contribute up to $5,000 into her IRA's. No matter how much Lisa contributes to her own IRA's, the remaining amount will not be below $27,000. Since they are married and filing a joint return, Steve can contribute up to $5,000 into his own IRA's.

A spouse does not have to have personal income to contribute to a spousal IRA. Ray and Amanda are both 22 years old. Ray earned $7,000 last year and Amanda did not work. Their total taxable compensation is $7000. Ray can contribute up to $4,000 into his own IRA. If he does, that leaves a possible $3,000 for Amanda to contribute into her own IRA. If Ray does not contribute to a plan, Amanda can contribute $4,000 into her own IRA.

If one of the spouses is fifty or over and the other is not, the individual limit applies as it normally would.

If either spouse has individual taxable income of $4,000 ($5,000 if over fifty), the spousal IRA rules do not apply.

Setting up any IRA is not difficult. Any financial institution recognized by the Internal Revenue Service should be able to handle this. Contributions made to IRA's between January 1 and April 15 can be used as deductions for last year's taxes or this year's taxes.