Marriage and Money: Taking a Team Approach to Retirement
Now that it's fairly common for families to have two wage
earners, many husbands and wives are accumulating assets in
separate employer-sponsored retirement accounts. In 2018, the
maximum employee contribution to a 401(k) or 403(b) plan is
$18,500 ($24,500 for those age 50 and older), and employers
often match contributions up to a set percentage of salary.
But even when most of a married couple's retirement assets
reside in different accounts, it's still possible to craft a unified
retirement strategy. To make it work, open communication and teamwork
are especially important when it comes to saving and
investing for retirement.
Retirement for two
Tax-deferred retirement accounts such as 401(k)s, 403(b)s,
and IRAs can only be held in one person's name, although a
spouse is typically listed as the beneficiary who would automatically
inherit the account upon the original owner's death. Taxable
investment accounts, on the other hand, may be held jointly.
Owning and managing separate portfolios allows each spouse
to choose investments based on his or her individual risk
tolerance. Some couples may prefer to maintain a high level of
independence for this reason, especially if one spouse is more
comfortable with market volatility than the other.
However, sharing plan information and coordinating
investments might help some families build more wealth over
time. For example, one spouse's workplace plan may offer a
broader selection of investment options, or the offerings in
one plan might be somewhat limited. With a joint strategy,
both spouses agree on an appropriate asset allocation for their
combined savings, and their contributions are invested in a
way that takes advantage of each plan's strengths while avoiding
Asset allocation is a method to help manage investment
risk; it does not guarantee a profit or protect against loss.
Spousal IRA opportunity
It can be difficult for a stay-at-home parent who is taking
time out of the workforce, or anyone who isn't an active
participant in an employer-sponsored plan, to keep his or her
retirement savings on track. Fortunately, a working spouse
can contribute up to $5,500 to his or her own IRA and up to
$5,500 more to a spouse's IRA (in 2018), as long
as the couple's combined income exceeds both contributions
and they file a joint tax return. An additional $1,000 catch-up
contribution can be made for each spouse who is age 50 or
older. All other IRA eligibility rules must be met.
Contributing to the IRA of a nonworking spouse offers
married couples a chance to double up on retirement
savings and might also provide a larger tax deduction than
contributing to a single IRA. For married couples filing
jointly, the ability to deduct contributions to the IRA of
an active participant in an employer-sponsored plan is
phased out if their modified adjusted gross income (MAGI)
$101,000 and $121,000 (in 2018). There are higher phaseout
limits when the contribution is being made to the IRA of
a nonparticipating spouse: MAGI between $189,000 and $199,000
Thus, some participants in workplace plans who earn too
much to deduct an IRA contribution for themselves may be
able to make a deductible IRA contribution to the account
of a nonparticipating spouse. You can make IRA contributions for the 2018 tax year up until April 15, 2019.
Withdrawals from tax-deferred retirement plans are taxed as
ordinary income and may be subject to a 10% federal income
tax penalty if withdrawn prior to age 59½, with certain
exceptions as outlined by the IRS.