Update: The deadline for making IRA contributions for tax year 2020 has been extended to May 17, 2021.
No matter what stage of life you’re in—tackling student loan debt or buying a house—it’s likely that planning for retirement may be looming in the back of your mind. And that’s a good thing: According to the Center for Retirement Research, 50% of households are at risk for not having enough to maintain their living standards in retirement.
One way to start your retirement savings plan is to work shoulder-to-shoulder with your partner. You have probably heard of joint checking accounts, but what about joint retirement accounts? While some retirement plans do not allow for multiple owners, there are ways couples can plan their retirement savings together.
How Couples Can Plan Together for Retirement
Joint retirement accounts may not be straightforward, but there is a way to work on retirement plans as a couple. Prepare your golden years with a few tips to combine retirement forces.
Review Your Retirement Goals as a Couple
Talking openly and honestly about your finances is one of the keys to building a healthy financial plan. A good first step is to have a productive conversation about your goals for retirement with your significant other. Do you plan on staying in the same home during your retirement years? Perhaps you want to travel internationally once per year or buy a camper and travel across the country.
Determine the amount of money you want in retirement, too. While of course each couple’s retirement number is dependent upon their standard of living, SoFi’s Retirement Calculator should help give you an estimate: Start with current income, subtract estimated Social Security benefits, and divide by 0.04 to get your target number in today’s dollars.
Once you’ve put the numbers together, you can figure out what you can safely withdraw from to make your retirement last as long as you do.
Determine When Both of You Will Retire
Do you know when you and your partner will retire? Remember, retirement plans like 401(k)s and IRAs cannot be withdrawn penalty-free until you reach age 59½.
If you or your partner do plan to retire earlier than 59½, it might make sense to put some of your retirement funds into a taxable brokerage account that you can access at any time.
Name Your Spouse as a Beneficiary
While there are many ways to start saving for retirement, unfortunately, there aren’t any options that operate as a joint retirement account by default. A work-around to this is to name your spouse as a beneficiary in your retirement account, or as your power of attorney. If something were to happen to one of you, the other person would still have access to your accounts and the money in it.
Joint Retirement Account Options
Not sure which retirement plan is right for you? Avoid over-complicating your retirement plans and retirement plan types. Having several accounts that aren’t maxed out might not work in your favor.
Focus on one type of retirement account first and work on maxing it out before moving on to a different retirement vehicle. In this way, you get the maximum benefit of the account for retirement.
There are a number of ways you can make the most of individual accounts and view them as joint retirement accounts. Here are specific advantages and strategies for each plan—from a 401(k) retirement account to a Roth IRA.
401(k) plans are retirement plans sponsored by your employer, so only you, the employee, can enroll in one. To include your spouse, you can designate them as a beneficiary, but they won’t be able to contribute to the plan.
You can defer taxes as a couple by maxing out your respective 401(k) plans. Because 401(k) contributions are made before tax, you won’t be taxed on that money until you retire and start withdrawing from the account.
Roth IRAs and Traditional IRAs
There are benefits on both sides of the traditional IRA vs Roth IRA debate, but one thing is universally true: Traditional or Roth IRAs are individual retirement accounts—there can only be one owner. But while you can’t have a joint IRA account, you can designate your partner as a beneficiary, so that in case anything were to happen to you, your partner would receive the funds.
Can married couples combine IRAs? No. But for couples who want to maximize the use of IRAs, each one of you can open an IRA and contribute up to $6,000 per year individually, for a combined $12,000 annually.
Some couples may not qualify for a full tax deduction for their traditional IRA, depending on their income and if they are covered by a retirement plan at work. If both are covered and file jointly, the deduction is reduced if their modified adjusted gross income is more than $104,000; the deduction phases out at a modified AGI of $124,000.
If only one is covered by a retirement plan, the deduction is reduced if their modified AGI is more than $196,000; the deduction phases out at a modified AGI of $206,000.
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If you have a partner who is not working or makes a low income, your spouse could qualify for a spousal independent retirement arrangement (IRA). This isn’t a special type of IRA, rather it’s a traditional or Roth IRA that allows a non-working spouse to use as a retirement vehicle.
Spousal IRAs are not technically a joint retirement account, but you do need to be married and filing a joint tax return in order to apply for one. The maximum annual contribution for a spousal IRA is $6,000 per year, and you can name your spouse as a beneficiary to the account.
Brokerage accounts aren’t technically retirement-only vehicles, but you can certainly use one (or several) as joint retirement accounts.
Brokerage accounts can be made up of the same funds that you would use in a 401(k) or IRA. While these accounts don’t offer tax advantages—your investment earnings are taxed in the current year, not upon withdrawal in retirement—you can access or withdraw the money at any time without any additional penalty.
When you have a joint brokerage account, both you and your partner can be equal owners of the account. With some accounts, that means that any money that is moved or funds that are bought or sold must also be approved by the other owner. Other accounts are set up so that one account holder can make a decision without “approval” by the other.
Common Joint Retirement Account Questions
Can both spouses contribute to 401k?
No—only one spouse can contribute to a 401(k) account. 401k’s are tied to employment at a company that offers the plan to employees.
However, a spouse can be a beneficiary of the plan. This means that if the original planholder dies, the spouse gets the inherited 401(k) and can then roll it into their own 401k or into an IRA.
How much can a married couple contribute to a 401k?
401(k) plans are individual, with only one person contributing to each account (along with their employer, in some cases). The maximum 401k contribution allowed in 2020 is $19,500, with so-called “catch-up” contributions of $6,500 allowed for those over 50. With those figures in mind, if each partner has their own 401(k) plan, a married couple can each contribute $19,500 for a combined $38,000 a year.
How many IRAs can a married couple have?
If a couple is married and files their taxes jointly, each partner in the marriage can contribute to their own IRAs. There is a limit — the total contributions to both IRAs “may not exceed your joint taxable income or the annual contribution limit on IRAs times two, whichever is less,” according to the IRS. The annual contribution limit is $6,000, so the total limit is $12,000. Those over age 50 can contribute an additional “catch-up” amount of $1000.
Can my non-working spouse have a Roth IRA?
Spousal IRAs can be traditional or Roth IRAs. In a Roth IRA, the money put into it is not tax free. Instead the money comes from taxable income but can grow tax free, so that an individual doesn’t have to pay taxes on the money that’s taken out of the account when you retire. While the contribution limits vary according to your tax filing and income status, typically the limit of contributions is the same as with traditional IRAs.
While no specific retirement savings plans—such as 401(k)s or IRAs—offer true joint retirement accounts, there is a way for couples to plan and save for retirement together. One easy way to make sure you’re both taken care of in retirement is to make each other the beneficiaries on your individual accounts.
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