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.
To maximize the value of retirement accounts as a couple, consider the following:
— 401(k) plans
— Traditional IRAs
— Roth IRAs
— Saver’s Credit
[READ: Retirement Accounts You Should Consider.]
401(k) Plans
The contribution limit for employees who have a 401(k) plan is $23,000 in 2024. If you are 50 or older, you can contribute an additional $7,500. If you or your spouse do not currently have a 401(k) plan through your workplaces, you can ask if there are retirement programs available.
When you contribute to a 401(k) plan and meet the requirements, the amount you put in is deducted from your taxable income. You defer paying taxes on the funds, and the investments grow tax-free. When you take withdrawals later, the amount will be subject to taxes.
If you and your spouse both have 401(k) accounts through your jobs, you can each defer paying taxes on $23,000 in 2024, or as much as $46,000 as a couple. A married couple in which both spouses are over 50 and with a 401(k) account at work could potentially defer paying income tax on as much as $61,000 in a single year.
However, if you can’t afford to max out your 401(k) accounts, you need to be more strategic in how you save. First, look at the match each of your employers offers, and aim to capture any company contributions that are provided. Once you have received the match, compare the fees on each of your accounts, and save more in the 401(k) account that provides the lowest cost funds. “If one person has a match up to 3% and another person has a match up to 10%, you probably want to try to get both of those matches,” says Katie Brewer, a certified financial planner at Your Richest Life in Dallas.
[10 Strategies to Maximize Your 401(k) Balance.]
Traditional IRAs
You can contribute up to $7,000 to your individual retirement account in 2024. The limit increases to $8,000 if you are age 50 and older. Like a 401(k), the money you place in an IRA is not taxed until you take withdrawals.
Married couples can contribute up to the limit in each of their names and defer paying income tax on $14,000 if they are 49 or younger. Each member of the couple who is 50 or older can contribute an additional $1,000. 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 retired 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 reaches a certain amount. For married couples filing jointly, if the spouse who makes the IRA contribution is covered by a workplace retirement plan, the phase-out range begins at $123,000. Couples who earn more than $143,000 won’t be able to take a deduction for the IRA contribution. If you contribute to an IRA and are not covered by a workplace retirement plan but your spouse is, the phase-out range is between $230,000 and $240,000 in 2024. 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 $230,000 and $240,000. The money you place into a Roth IRA is after-tax, so you’ll have to first pay taxes on the income and then put it into the account.
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 and senior wealth advisor for Mercer Advisors in Rochester, New York.
Saver’s Credit
Married couples who earn less than $73,000 and contribute to a retirement account are eligible for the saver’s credit. This tax credit is worth between 10% and 50% 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.”
More from U.S. News
How to Reduce Your Lifetime Tax Bill With a Roth IRA
Are You Too Old to Benefit From a Roth IRA?
12 Ways to Avoid the IRA Early Withdrawal Penalty
How Married Couples Can Max Out Their Retirement Accounts originally appeared on usnews.com
Update 06/04/24: This story was published at an earlier date and has been updated with new information.
