Can Gay Spouses Have Spousal IRAs?
At Queercents, at least 25 – 30% of our readers (according to our last survey) are straight. Mrs. Micah happens to be one of them and she’s been a wonderful supporter since she started blogging at Mrs. Micah: Finance for a Freelance Life. I asked her if I could reprint this recent post about gays and spousal IRAs. These are her words’¦
Periodically, I get search hits for the guest post on spousal IRAs for SAHMs (or other spouses who don’t bring in traditional income). Only the searchers are more interested in whether or not a gay spouse can have a spousal IRA.
The answer is no. Not even if you’re married in Massachusetts or California. While the US government allows states to come up with their own specific marriage laws, the ‘œDefense of Marriage Act’ inserted this little bugger into federal law:
In determining the meaning of any Act of Congress, or of any ruling, regulation, or interpretation of the various administrative bureaus and agencies of the United States, the word ‘œmarriage’ means only a legal union between one man and one woman as husband and wife, and the word ‘œspouse’ refers only to a person of the opposite sex who is a husband or a wife.
Preemptive strike by the Right against gay couples ever having equal rights, even if they’re married. Am I the only one who feels like this was a really mean thing to do?
What it essentially means is that while you may be married, you can only be a ‘œspouse’ for federal law and thus can only have the Spousal IRA if you’re the opposite sex from your spouse. So if you’re the same sex as your spouse, you can’t have one.
Fortunately, you’re still your own person and therefore you should be able to have a Roth IRA, as long as you earn the money that goes into it. Pain in the butt for full-time parents (hence the benefits of the Spousal IRA), but since the limit is $5000/year unless you’re almost at retirement, if you can earn that you can contribute.
Not being recognized by the federal government is a potential advantage here, if your spouse makes too much for you to have a Roth IRA. Because they don’t recognize the marriage, your spouse’s earnings won’t exclude you from contributing. It doesn’t really mitigate the other disadvantages, but it may help you save for retirement.
For more on Roth IRAs, I’d suggest checking out Chance Favors, which has pretty much everything you need to know.
More about Mrs. Micah
Mrs. Micah is 22, a recent college grad who recently got married. Along with getting a brilliant and loving husband, she acquired $100,000+ in student loan debt (which he acquired for the 10 years of school in getting a PhD.), $8,000 in car debt and $800 in credit card debt. Her blog, Mrs. Micah: Finance for a Freelance Life, began as a place for her to start being responsible about spending, saving, and debt repayment.
She is also the creator of The Finwikian, a wiki dedicated to all things personal finance on the internet. It contains a catalog of personal finance blogs and includes articles on numerous topics related to personal finance.
Mrs. Micah is definitely NOT the only one who feels the Defense of Marriage Act is supremely unfair. My partner and I married on Sunday in California. This year in particular the Spousal IRA would be an excellent benefit. Spouses do have some options if the higher earning one is self-employed. In our case, I plan to do some work for my spouse thereby allowing her to divert a portion ($5000 or so) of her earnings to me. There is a double taxation of wages but since I am not otherwise employed there is little or no tax burden.
Creative solution, Carol. For $5000 the taxes should be minimal (I’m not an accountant, but I’d think there would be virtually no taxes on that little). And of course it’s Roth eligible.
I know this is an awful thought, but running with the whole being paid thing because of the non-federal-legality…could the working spouse officially pay the SAHspouse as a babysitter? I was trying to think of what spouses could come up with as forms of “services rendered.” That’s if there were kids, of course. But it feels like a horrible idea because the spouse isn’t a babysitter at all. I don’t know how that would work if the SAHspouse were a legal parent.
Congrats on your marriage and I hope that the DoMA will soon be repealed or a way will be found around it so this isn’t even an issue any more.
The solution Carol has would most likely work as long as you followed the IRS rules exactly.
This means filing Tax Payment quarterlys and paying both the Witholding and Social Security Taxes..including the “Employers Share” (nasty hit but necessary though offset by the fact that since you have SS income your are ENTITLED to SS benefits when you retire)…giving the NWS a W-2 and the NWS filing a 1040.
Should get a refund of most or all of the tax witheld except for the SS taxes (around $700 on $5000) which are worth the One Time cost in this case..IMO.
As a side note this would be a Perfect way to let a 10 or 12 year old start a Roth IRA…since we can’t marry any children brought in aren’t recognized as relatives by birth or marriage so little Amanda or Johhny gets $75 for mowing the yard. }:~D
~ Roland
I think Mrs. Micah’s suggestion regarding payment for babysitting services (though I agree an unfortunate description) would work if the NWS is not a legal parent. For that matter, you could also make a case for other domestic contributions such as cleaning and cooking. And yes… following the IRS guidelines is essential. Thank you both.