The spousal IRA creates tax-advantaged retirement savings opportunities for a nonworking spouse. In a spousal IRA, the employed spouse may contribute to a spousal IRA for the nonworking spouse without having to fund his or her own IRA. A spousal IRA may be either a traditional or Roth IRA. 

As of 2008, if the employed spouse is an active participant in an employer-sponsored plan and the other spouse is not, the nonworking spouse may generally deduct a full $5,000 contribution to a traditional IRA. This is allowed if the combined adjusted gross income (AGI) for the couple is at least $5,000 and does not exceed $159,000. 

Also, if your spouse is age 50 or older, you may be able to contribute an additional $1,000 each year.

Phased-Out Contributions

Contributions are phased out for married couples with a joint AGI between $159,000 and $169,000. 

Depending on whether you choose a traditional or Roth IRA for your spousal IRA, all the appropriate rules and restrictions mentioned earlier will apply.

Reference: Because 2007 contributions can be made until April 15, 2008, note these 2007 limits: A nonworking spouse may generally deduct a full $4,000 contribution to a traditional IRA.  This is allowed if the combined adjusted gross income (AGI) for the couple is at least $4,000 and does not exceed  $156,000. Contributions are phased-out for married couples with a joint AGI between $156,000 and $166,000.