The retirement investing options open to married couples vary widely, from individual retirement accounts to employer-sponsored plans. Deciding which retirement investing vehicles are most appropriate for you as a couple is a personal choice and should be a big part of your financial planning picture.
Talk with your spouse to figure out how you, collectively, stand to benefit most. After all, most likely you envision spending your retirement years together, so each of you should take part in developing a strategy that works for you both. First, arm yourselves with the answers to these questions:
--What is the income-earning structure within your marriage and your adjusted gross income (AGI)?
--How much money can you afford to contribute, in total, to retirement accounts?
--If your employer offers a retirement plan, what is the status of the employer match--for each of you?
--If your employer offers a retirement plan, does it include well-rated, appropriate investing options with reasonable fees?
--Are you most comfortable having multiple investment accounts, or do you prefer to minimize the number of accounts you have?
--Are you a sophisticated investor who wants freedom of choice when selecting investments, or do you prefer a simpler approach?
Then consider what options you have. Your income-earning structure and AGI greatly affect your ability to take tax deductions for IRA contributions, for example, while access to employer-sponsored retirement plans can influence how much, if any, of your savings you may want to direct to IRAs.
You can learn a lot about what investing vehicles are open to you by doing a little research. Be warned, however, that IRAs and their many different tax deduction scenarios can be confusing. The IRS website is a good source of basic information about IRA contribution limits and deduction limits and more details depending on whether you're covered by a retirement plan at work.
Start by contributing enough to receive the full employer match available from all employer retirement plans. If you then can afford to put additional money away for retirement, you can weigh putting more into retirement plans against making IRA contributions.
Do you prefer the simplicity of fewer investing options and a payroll-deducted contribution? If so, you may just want to stick with 401(k) contributions and forget about IRAs.
Check to see if your 401(k) plans offer a Roth option, as Roth 401(k) contributions can provide you with tax diversification in retirement. Because you pay income tax on the money before it goes into your account, eligible withdrawals in retirement from your Roth account could be tax-free.
After you've taken full advantage of any employer 401(k) matches, decide if you want to expand your retirement savings strategy by adding IRA investing to your portfolio. IRAs can be appealing if you want access to virtually unlimited investing options or if your work retirement plan has high fees. But be certain to review income limitations because higher-earning couples may not be eligible for as many tax benefits with IRAs as through 401(k) investing.
And while it may not seem like it has much to do with investing, an often-overlooked yet vital part of retirement planning as a couple is naming your beneficiaries. Make sure that your beneficiary designations are accurate and up-to-date on all of your accounts.
Because there are a variety of retirement investing options for married couples, do your homework. Much like setting your long-term financial goals and determining your asset class allocation, choosing your retirement accounts should be a highly personalized, well-researched activity.
Scott Holsopple is the president of Smart401k, offering easy-to-use, cost-effective 401(k) advice and solutions for the everyday investor. His advice has been featured on various news outlets, including FOX Business, USA Today and The Wall Street Journal.