How Married Couples Can Max Out Their Retirement Accounts

Married couples can often claim twice the retirement savings tax breaks of single people. Couples can also strategically save in their respective workplace retirement accounts to get the best possible employer contributions and investment options. Here’s how to maximize the value of retirement accounts as a couple.

401(k) plans. If you and your spouse both have 401(k) accounts through your jobs, you can eachdefer paying taxes on $18,000 in 2016, or as much as $36,000 as a couple. And once you turn age 50 or older, you can each contribute an additional $6,000 to a 401(k). A married couple, both over 50 and with a 401(k) account at work, could potentially defer paying income tax on as much as $48,000 in a single year.

However, if you can’t afford to max out your 401(k) accounts through both of your employers, you need to be more strategic in your saving. First, look at the match each of your employers offers, and aim to capture any company contributions that are provided. Once you have gotten the match, compare the fees on each of your accounts, and do additional saving in the 401(k) account that provides the lowest cost funds. “If one person has a match up to 3 percent and another person has a match up to 10 percent, you probably want to try to get both of those matches,” says Katie Brewer, a certified financial planner for Your Richest Life in Garland, Texas. “It’s good to look at the plan fees and also the fees of the internal investments.”

IRAs. Workers can contribute up to $5,500 to an individual retirement account in 2016, and the limit jumps to $6,500 for people age 50 and older. Married couples can contribute that amount in each of their names and defer paying income tax on $11,000 if they are 49 or younger, and an additional $1,000 for each member of the couple who is 50 or older. If only one spouse works, the working spouse can make an IRA contribution on behalf of the non-working spouse. “If you don’t have income, you can’t put money in an IRA, unless you are a spouse of someone who has income. Then you can do a spousal IRA,” says Francine Duke, a certified financial planner for Aqua Financial Planning in Chicago. You can’t open a joint IRA in both of your names, but you can name each other as the beneficiary of the account.

However, your ability to claim a tax deduction for your IRA contributions is limited if you have a 401(k) account at work and your modified adjusted gross income as a married couple is $98,000 to $118,000. If only one member of the couple has a workplace retirement account, the ability to claim a tax deduction on an IRA contribution is phased out for couples earning between $184,000 and $194,000 in 2016. Couples who earn more than that can’t defer paying income tax on an IRA contribution.

Roth IRA. If you have a workplace retirement account and your income makes you ineligible to contribute to a traditional IRA, you may still be able to save in a Roth IRA. Couples are eligible to make a Roth IRA contribution until their adjusted gross income is between $184,000 and $194,000. While a Roth IRA contribution won’t get you an immediate tax break, the earnings in the account will grow without tax and you could qualify for tax-free distributions in retirement. “It’s beneficial to utilize the Roth account when your earnings are very low and the tax deduction is not going to be as necessary,” says Jamie Block, a certified financial planner for Wealth Design Retirement Services in Rochester, New York.

Saver’s credit. Married couples who earn less than $61,500 and contribute to a retirement account are eligible for the saver’s credit. This tax credit is worth between 10 and 50 percent of the amount contributed to a retirement account up to $4,000 for couples. “You put the money in your 401(k) pretax, and then you also get the saver’s credit, which offsets any tax that you owe,” Block says. “The government gives you this credit to incentivize people to save for retirement.”

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