It’s likely you’ve spoken with your spouse about managing
finances before you said your “I do’s,” yet there’s a good chance you left a
big topic off the table, given it may not have been top of mind at the time —
and that’s retirement.
You and your partner’s golden years may be decades away, but
it’s still crucial that you know the age each other wants to retire at and what
kind of lifestyle you want to lead. One person may want to downsize to a
smaller home to save money while the other may want to spend their nonworking
years traveling the world.
Once you know what retirement as a couple will look like,
it’s time to talk about how you plan to save up for it together.
What to know about combining retirement accounts with
your spouse
Unlike combining money in a joint checking account, you
cannot combine retirement accounts with your spouse. With 401(k) accounts,
since these are tied to employment at a company, only the employee can enroll
and contribute to one. And with IRAs, the name “individual retirement account”
means that there is only one owner on the account.
The caveat here, however, is that spouses can name, or
designate, the other as a beneficiary in their retirement accounts. In this
case, your spouse who you named as a beneficiary cannot contribute to your
plan, but they would have access to your account and funds should something
happen to you. In the event of a death, the other spouse would inherit the
account and could roll it into their own 401(k) or IRA. Making each other the
beneficiaries on your own retirement accounts ensures that you’re both taken
care of for the future.
There’s also something called “spousal IRAs,” which may
sound like a joint retirement account, but it’s not. Spousal IRAs act more as
arrangements for partners who are unemployed or making a low income. A spousal
IRA is essentially a traditional or Roth IRA that a working spouse contributes
to in the name of their non-working spouse to use as their retirement vehicle.
Usually, IRAs require individuals to have earned income to contribute. In order
to apply for a spousal IRA, you must be married and be filing a joint tax
return.
Why both spouses should open an IRA separately
While you’re still able to contribute to a retirement
account, it’s worth maximizing both your IRAs to receive the greatest tax
benefits. Both traditional and Roth IRAs have the same contribution limits: For
2022, those under age 50 can make a total contribution into their IRAs of up to
$6,000, but if you both open an account, that’s a combined $12,000 annually.
Plus, if you and/or your spouse is 50 and older, don’t forget that you can each
contribute an additional $1,000 per year as a “catch-up” contribution, which
brings that combined total to $14,000.
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