Married couples often choose to handle their finances jointly. Yet when it comes to retirement accounts like 401(k)s and Roth IRAs, the federal government insists that each person have their own individual account in their own name rather than having a joint family account. In most cases, two spouses can each participate in their own 401(k), and depending on their income, they might also be able to fund a Roth IRA as well. Let's look at some of the nuances involved.
To Each His (or Her) Own
Retirement accounts are held on behalf of one individual. In the case of a 401(k) plan, the account belongs to the person who works for the employer offering the plan. So if each spouse has a job whose employer offers a 401(k), then each one can participate. However, the two spouses have to decide how much each will contribute.
Roth IRAs aren't tied to an employer, but they follow the similar rule that each account must be for one person only. One difference is that a spouse who doesn't work can still open and contribute to a Roth IRA if the other spouse has enough earned income to cover the total contributions made to both spouses' Roth IRAs. You can't make spousal contributions within a 401(k) plan, so many couples look to even things out when only one spouse has a 401(k) to make sure the other takes full advantage of a Roth IRA.
Limits on Eligibility
There are no limitations on 401(k) participation other than those imposed by your employer. As long as you qualify, you can contribute up to the maximum amount from your salary, which for 2016 is $18,000 for those under age 50 and $24,000 for those 50 or older.
For Roth IRA contributions, there's a maximum income limit. For married couples with adjusted gross income of more than $194,000, no Roth IRA contribution at all is allowed. Between $184,000 and $194,000, a partial contribution is permissible. Otherwise, the full $5,500 contribution for those under 50 or $6,500 for those 50 or older is available.
Finally, consider that in some situations, it pays to manage how you allocate your retirement savings. For instance, if both employers offer matching contributions to their 401(k) plans, then having just one spouse contribute to a 401(k) would leave free money on the table. Having the two spouses each make smaller contributions might nevertheless be enough to pick up both matching contributions, leaving the entire family that much better off.
Handling finances jointly becomes more difficult when you're dealing with retirement accounts. By coordinating well, however, you can figure out the best result for your family.