No matter how long you have been married or how many anniversaries you’ve celebrated, you’re sure to know that you’re stronger together than you are apart. Retirement savings are no different. When it comes to retirement planning specifically, they still need to keep an eye out for ways to manage it as a couple — even if a couple keeps some aspects of their finances separate.
In order to make retirement as enjoyable as possible for you and your spouse, here are some things to consider.
A Couple’s Guide to Combining Retirement Accounts
Your retirement accounts cannot be combined with your spouse like your joint checking account. The reason? 401(k) accounts are linked to an individual’s employment at a company. Therefore, only those individuals can enroll and contribute.
What IRAs? As the name implies, these are “individual retirement accounts.” In other words, the account only has one owner.
There is, however, a caveat. Retirement accounts allow spouses to designate the other as a beneficiary. Your spouse cannot contribute to your plan if he or she was named a beneficiary. However, if something were to happen to you, your account and funds would be accessible to them.
When one spouse passes away, the other spouse would inherit the account and could roll it into their own 401(k) or IRA. In short, both of you are taken care of in the future by making each other the beneficiaries of your retirement accounts.
Spousal IRAs are also available. Despite sounding like joint retirement accounts, they aren’t. The purpose of spousal IRAs is more for unemployed or low-income partners.
Basically, spousal IRAs are traditional or Roth IRAs that a working spouse contributes to in the name of their non-working spouse with the intention of using the funds for their retirement. Individuals can typically contribute to IRAs only if they have earned income. Also, spousal IRAs can only be applied for by couples filing joint tax returns.
The Benefits of Opening a Separate IRA for Each Spouse
The best way to receive the highest tax benefits is to maximize your contribution to both IRAs while you can. There is no difference in contribution limits between traditional IRAs and Roth IRAs:
- Individually, you can contribute $6,500 to your IRA in 2023 if you’re younger than 50, and $7,500 if you’re older than 50.
- If you both open accounts, you can contribute a total of $13,000 each year. You can also contribute $1,000 each per year as a “catch-up” contribution if either of you is over 50, bringing your combined contribution to $15,000.
There is an income limit for Roth IRAs, so people earning above this threshold can make reduced contributions. In turn, those making above that threshold are ineligible.
Those whose income falls between $138,000 and $153,000 will be phased out starting in 2023. In the case of married couples filing jointly, the amount is $218,000 and $228,000.
IRAs can be opened at brokerages such as Charles Schwab or Fidelity. If you prefer robo-advisors, check out Wealthfront, SoFi, and Betterment, which construct and manage customized portfolios for investors based on their age, risk tolerance, and investment goals. Besides traditional and Roth IRAs, each offers retirement planning tools to help you and your spouse prepare for retirement.
How Couples Can Plan Together for Retirement
Managing retirement plans as a couple may not be straightforward, but there are ways to make it work. Here are a few tips for combining retirement forces to make your golden years as fulfilling as possible.
As a couple, discuss your retirement goals.
To build a healthy financial plan, you need to talk openly and honestly about your finances. Getting your significant other to understand your retirement goals is a great first step. During your retirement years, do you plan to stay in the same house? Perhaps you would like to travel internationally once a year or travel across the country in a camper.
You should also decide how much you want to retire with. The retirement number for each couple depends on their standard of living, but a Retirement Calculator can give you an idea.
To find your target number today, subtract your current income from your estimated Social Security benefits, and divide the result by 0.04. Based on your numbers, you can calculate how much you can withdraw safely to make your retirement last as long as possible.
Establish a retirement date for both of you.
When will you and your partner retire? If you are under age 59 ½, you cannot withdraw penalty-free from retirement plans like 401(k)s and IRAs. With that in mind, putting some of your retirement funds into a taxable brokerage account that you can access at any time might make sense if you or your partner plan to retire earlier than 59 ½.
You might think it would be best if both of you retired at the same time. But depending on your circumstances, you might want to retire separately.
The size of Social Security benefits can be also affected considerably by being able to earn for a few more years during your peak earning years. By retiring early, you could lose out on this money.
It is also important to consider whether both of you are eligible for Medicare. You might want to consider holding on to your job until you are eligible for Medicare if one of you is eligible and the other is not.
Additionally, a 2019 study by Boston College’s Center for Retirement Research found that households with two incomes don’t save more for retirement. In most dual-earner households, only one member has a 401(k). The study suggests that dual-earner households with only one saver are saving less than they should.
You shouldn’t assume that saving money through work is enough just because one of you does it. Consider making bigger 401(k) contributions if one of you does not have access to an employer’s plan.
[Related: Retirement Planning Strategies for Couples with Unequal Incomes]
Choose an investment option and determine your contribution amount.
Your retirement plans, goals, and needs need to be discussed as a couple. At the same time, couples disagree over how much to save for retirement and when to retire their partners. When these issues are not addressed, retirement plans can be derailed. It is particularly true if savings amounts are not calculated together.
The only way to make sure you and your partner can enjoy your retirement is to talk with each other and come up with a plan.
Ideally, you should decide on a budget amount that you both can afford and stick to consistently. However, there is no need for both of you to follow the same set of rules. But, if your company offers 401(k) plans with company matching, you should contribute the minimum.
Each account is unique, so you should keep this in mind. As such, compare them carefully to see which one offers the most advantages. For instance, lower management fees and a greater variety of investment options. The better of the two should be prioritized. And don’t copy each other’s investments. You can better diversify your overall portfolio if you know what your partner invests in.
Having trouble choosing a retirement plan? Well, here are some joint retirement accounts worth exploring.
However, before moving on to a different retirement vehicle, it is ideal to maximize one type of retirement account first. By doing so, you will get the maximum benefit from the retirement account.
Also, making the most of individual retirement accounts can be done in a variety of ways. From Roth IRAs to 401(k)s, here are the specific benefits and strategies for each.
401(k) plans
Retirement plans sponsored by employers are available only to employees, so you are the only one eligible to enroll. You can make your spouse a beneficiary, but they won’t be able to make contributions.
When both of your 401(k) plans are maxed out, you can defer taxes as a couple. The money you contribute to a 401(k) account is tax-deferred until you retire and begin withdrawing it. Contributions to 401(k)s, 403(b)s, most 457 plans, and Thrift Savings Plans will be limited to $22,500 in 2023, up from $20,500 in 2022.
Roth IRAs and Traditional IRAs
Whether a traditional or Roth IRA is right for you depends on your personal circumstances. However, there is one universal truth. An individual retirement account, such as a traditional or Roth IRA, can only be owned by one person. Although you cannot have a joint IRA account, you can designate your partner as a beneficiary, so that if you pass away, their funds would be distributed to them.
Is it possible for married couples to combine their IRAs? Unfortunately, no. However, if both of you are interested in making the most use of IRAs, each of you can open an IRA and contribute up to $6,500 annually, for a combined $13,000.
It’s important to note that some couples may not be able to deduct the full amount of their traditional IRA. The amount depends on their income and whether they are covered by a retirement plan at work.
Those filing as singles will have an income phase-out range of $138,000 to $153,000 in 2023. For married couples filing jointly, it’s $218,000 and $228,000.
If only one is covered by a retirement plan, the deduction is reduced if their modified AGI is more than $198,000; the deduction phases out at a modified AGI of $208,000.
Spousal IRAs
In IRS rules, a spouse without income or employment can fund an individual retirement account called a spousal IRA. Be aware that IRAs are not specifically designed for spouses. Instead, the rule permits nonworking spouses to contribute to a traditional IRA or Roth IRA as long as their spouse is working.
Under spousal IRA rules, individual retirement accounts are not co-owned. The working spouse owns an IRA under his or her own name, and the non-working spouse owns an IRA under her or his name. The accounts may have been opened before they got married, while they were married and both working, or by the non-working spouse.
In 2021 and 2022, spouses contributed the same amount to an IRA as any other individual: $6,000 per year. The the limit increased to $6,500 in 2023. In 2021 and 2022, the annual contribution limit for people 50 and older was $7,000 and increased to $7,500 in 2023.
As per the IRS, “Each spouse can make a contribution up to the current limit.”
For 2023, spousal IRA contributions will be limited to $13,000 for couples where one spouse works and $15,000 for couples over 50. Each account’s contribution limit is determined by its individual annual IRA contribution limit.
Brokerage Accounts
A brokerage account is not technically a retirement-only vehicle. However, you can surely use one (or several) to fund a joint retirement.
In brokerage accounts, you can use the same funds as in 401(k)s and IRAs. Despite not offering tax benefits, these accounts offer the following benefits:
- When you withdraw your investment earnings in retirement, you will not be taxed on them.
- The money can be accessed or withdrawn at any time without additional penalties.
Also, you can own a joint brokerage account with your partner equally. So, if money is moved or sold among some accounts, the other owner must also approve any transactions. In other accounts, though, one account holder can make a decision without the other’s approval.
Choose the best health coverage.
For families, health insurance is expensive. Based on a survey by the Kaiser Family Foundation, the average annual premiums for employer-sponsored health insurance in 2022 were $22,463. In the event that you and your spouse have access to health insurance through your work, you’ll need to decide whether to keep your own individual plans or join together under one plan.
What if you have children? They can be covered under just one parent’s plan or under a family plan. In fact, a growing number of employers are tiering their coverage options. “Employees plus children,” for example, is often a cheaper category than “employees plus spouses” or “employees plus family.”
The annual premiums for each option can be reduced by your employer’s incentives, such as HSA deposits for high-deductible plans. Large companies generally charge a $100 spousal surcharge per month. Ensure that you know the deductible and out-of-pocket maximum. If one spouse has better dental and vision coverage than the other, consider those options as well.
Be sure to check for niche benefits, such as fertility treatments, mental health treatment, and special needs therapies. You should also make sure your preferred doctors are included in the
Finally, consider your family’s frequency of seeking treatment. The best choice for your family may be a high-deductible policy that is eligible for an HSA if your family has a few ongoing medical issues. In general, these policies have lower premiums than preferred provider organizations (PPOs). Those who are eligible for a family HSA-eligible high-deductible plan will have to meet the deductible before the plan begins paying out benefits. For 2023, self-only HSA contribution limits are $3,850 and family contribution limits are $7,750.
Pay attention to taxes.
A married couple may file their federal income tax return jointly or separately. By extending several tax breaks to couples who file jointly, the IRS strongly encourages most couples to file joint tax returns. While most married couples should file jointly, there may be a few instances in which it is better to file separately.
Advantages of filing jointly.
Filing a joint tax return with your spouse has many advantages. When calculating their taxable income, joint filers receive one of the largest standard deductions each year.
A couple filing jointly can usually qualify for multiple tax credits, including:
- Earned Income Tax Credit
- American Opportunity and Lifetime Learning Education Tax Credits
- Exclusion or credit for adoption expenses
- Child and Dependent Care Tax Credit
Tax deductions and taxes are generally higher for joint filers, which allows them to earn more income and still be eligible for certain benefits.
Consequences of filing your tax returns separately.
Tax benefits are typically reduced for couples who file separately, on the other hand. It is possible that filing separate tax returns will result in more taxes.
- The standard deduction for married taxpayers filing separately in 2022 will be $12,950, compared to $25,900 for those filing jointly. As of 2023, single filers and married persons filing separate returns will have a standard deduction of $13,850, joint filers will have a standard deduction of $27,700, and heads of households will have a standard deduction of $20,800.
- Many of the tax deductions and credits mentioned above are automatically disqualified if you file a separate return from your spouse.
- In addition, separate filers usually have a smaller deduction for IRA contributions.
- They also cannot take the deduction for student loan interest.
- When filing separately, capital loss deductions are limited to $1,500, instead of $3,000 when filing jointly.
When you might file separately.
You may be able to save on your tax return by filing separately in rare circumstances.
- You and your spouse may not be able to claim most of your expenses in 2022 if you or your spouse have a large amount of out-of-pocket medical expenses to claim. Because the IRS only lets you deduct costs that exceed 7.5% of your adjusted gross income (AGI), if you and your spouse have high AGIs, it can be difficult to claim most of your expenses.
- Suppose you have $10,000 in medical expenses and $50,000 in income. This would be in compliance with the 7.5% threshold ($10,000 ÷ $50,000 = 20% of your income).
- In contrast, if both of you make $135,000, you cannot claim these medical expenses ($10,000 ÷ $135,000 = 7.4% of your income).
- If your incomes are not the same, filing separate returns may allow you to claim more medical deductions by applying the threshold to only one income.
- The standard deduction must be taken by both spouses when filing separately, or itemized deductions must be claimed by both spouses. The standard deduction cannot be taken by one spouse while the itemized deduction is taken by the other.
- If both spouses paid for the expense, each deduction can only be used by one spouse when itemizing deductions. If the total deduction claimed by both spouses does not exceed the total deduction, deductions can be split between spouses filing separately.
Make your spouse a beneficiary.
Unfortunately, there are no options that automatically operate as joint retirement accounts, despite the fact that there are many ways to start saving for retirement. The best way to prevent this is to make your spouse the beneficiary of your retirement account or make him/her the power of attorney for your account.
That means your accounts and the money in them would be accessible to the other person even if one of you died.
FAQs
1. What is the average retirement income for a couple?
There is no simple answer to this question. In order to determine how much money you will need in retirement, many factors need to be considered. Among these factors are your age, health, lifestyle, and where you intend to reside.
People who are young and healthy may be able to make do with less money than those who are older and have health problems. Nevertheless, the amount of money you need will also depend on your lifestyle. The amount of money you will need depends on your lifestyle, for example, if you plan to travel the world or enjoy a luxurious lifestyle.
You should speak with a financial advisor to determine how much you will need for retirement. In order to create an effective retirement plan for you, they will take into account all the unique circumstances that you face.
2. For a couple, what is a good monthly retirement income?
This is another question that cannot be answered in a one-size-fits-all manner. A person’s age, health, lifestyle, and where they intend to live all play a role in what is a good monthly retirement income. A few general guidelines can, however, be followed.
To be able to retire comfortably, you should aim to have at least 70% of your pre-retirement income each month. You would need at least $3500 per month in retirement income if you bring in a combined income of $5000 each month with your spouse.
It is important to note that this is just a general guideline. There is a possibility that you will need more or less money based on your exact circumstances.
3. Is it possible for both spouses to contribute to a 401(k)?
A 401(k) account can only be contributed to by one spouse. The employee’s 401(k) plan is tied to his or her employment with the company offering the plan.
It is possible, however, for a spouse to be a beneficiary of the plan. An inherited 401(k) can be rolled into an IRA or 401(k) of the spouse if the original plan holder passes away.
Furthermore, 401(k) plans are individual plans, with each account being contributed to by only one individual – along with their employer, in some cases. In 2023, the maximum 401(k) contribution is $22,500 ($30,000 for those age 50 or older). Based on those numbers, a married couple can each contribute $22,500 a year to a 401(k) plan, for a total contribution of $45,000.
4. How many IRAs can a married couple have?
IRAs can be contributed to by each partner of a married couple filing jointly. However, there is a limit. Both IRA contributions “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 $6,500, so the total limit is $13,000.A $1000 “catch-up” contribution is available to those over age 50.
In addition, Spousal IRAs can be traditional or Roth IRAs. Roth IRAs do not offer tax-free investments. Instead, the money comes from taxable income but can grow tax-free, so when you retire, you don’t have to pay taxes on the money taken out of the account. Although contribution limits vary depending on your tax filing status and income, they are typically the same as with traditional IRAs.
5. What are the best ways to provide an income for a couple that will last their entire lives?
There is only one guaranteed option: purchasing an annuity. You will receive an income for the rest of your life from an annuity or insurance company. And, with a guaranteed lifetime income rider will provide payments for as long as you both live, no matter how long that may be.
For example, a couple aged 60 who wants to retire at 65 buys an annuity for $500,000 with a lifetime income rider. For the rest of their lives, they would receive $3,300 a month, or about $40,000. The remaining surviving spouse will receive a $3,300 monthly payment after the first spouse dies. Beneficiaries will receive a lump sum after both spouses pass away.
It is also possible for lifetime payments to increase each year as inflation increases.
