We consider a SQUID tunneling between 2 nearly degenerate flux states. Decoherence caused by paramagnetic and nuclear spins in the low-T limit is shown to be much stronger than that from electronic excitations. The decoherence time ô is determined by the linewidth Eo of spin bath states, which can be reduced by a correct choice of ring geometry and isotopic purification. Eo can be measured in either field sweep or microwave absorption experiments, allowing both a test of the theory and design control.