13. Which of the following retirement plans will allow for a nonworking spouse to set up a separate account and make contributions based on the working spouse's income?
Answer: C
An IRA allows for a nonworking spouse to set up a separate account and make contributions based on the working spouse's income.
An Individual Retirement Account (IRA) enables a nonworking spouse to establish their own account and contribute based on the earnings of the working spouse, effectively utilizing the couple's combined income for retirement savings.
A) SIMPLE IRA
A SIMPLE IRA is designed for small businesses or self-employed individuals and does not specifically allow a nonworking spouse to establish a separate account for contributions based on the working spouse's income. Each participant in a SIMPLE IRA must have their own account tied to their own earnings.
B) SEP IRA
A SEP IRA is primarily for self-employed individuals and their employees, allowing employers to make contributions to employee accounts. While it does not support contributions from a nonworking spouse based on the income of a working spouse, it is more focused on employer contributions rather than individual accounts for nonworking spouses.
C) IRA
An IRA permits a nonworking spouse to create a separate account and contribute based on the working spouse's income, making it the correct choice. This arrangement allows couples to maximize their retirement savings by leveraging the working spouse's earnings, even if one spouse does not have earned income.
D) 401(k)
A 401(k) plan is typically employer-sponsored and does not allow a nonworking spouse to set up a separate account for contributions based solely on the working spouse's income. Contributions to a 401(k) are usually linked to the employment status of the individual and their respective employer.
Conclusion
The IRA is the only retirement plan listed that allows a nonworking spouse to create a separate account and contribute based on the working spouse's income, making it the most suitable option for couples looking to enhance their retirement savings. All other options either focus on employer contributions or are tied to the individual’s own earnings, failing to provide the same flexibility for nonworking spouses.