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Chapter 21. No 401(k)? No Problem! > Spousal IRAs - Pg. 217

No 401(k)? No Problem! 217 For What It's Worth If there is a delay or cancellation of the purchase or construction of the first home, the amount of the distribution may be contributed back into the IRA within 120 days of receipt. (Now does that prove those fellows in Wash- ington have a heart, or what?) Spousal IRAs Way back in the beginning of time, there were spousal IRAs. They allowed for the working spouse who was eligible to contribute $2,000 to an IRA to contribute another $250 to an IRA for the non- working spouse. After so many years, the reality hit home; no one can retire on the savings of $250 a year. The nonworking spouse's Social Security would be meager, and the guys in Washington didn't want those spouses on the welfare rolls. Saving and investing $250 annually for 30 years doesn't get you very much. Assuming that you could get into a growth mutual fund that didn't have a minimum of $3,000 and you could earn 10 percent on your investment (which is a pretty optimistic assumption), you could have a nest egg of $41,000. Now compare that with the spouse who is able to put away $2,000; using the same assumptions, that spouse could retire with a $330,000 nest egg. For What It's Worth Beginning in 2002, spousal IRAs will be subject to the same contribution limits as traditional IRAs for people who work. However, as under current law, the nonworking spouse's deductible amount will be phased out for married couples with AGI between $150,000 and $160,000. Current law states that a working married individual may make contributions to an individual retire- ment plan for a nonworking spouse of up to $2,000 in addition to $2,000 for the working spouse, if the combined compensation of both spouses is at least equal to the amount contributed. A spouse could work part time and earn less than $2,000 and still be eligible for the full $2,000 spousal IRA as long as the other spouse has earned income. The working spouse and nonworking spouse must file a joint tax return for the year in which the deduction is taken. Roth IRAs The Roth IRA had originally been termed the IRA Plus, but Sen. William Roth of Delaware, then- chairman of the Senate Finance Committee, deserved recognition for his initiative in getting this savings program through the Washington maze.