Tips for Married Couples to Max Out Retirement Savings

By Christine / April 14, 2016
Tips for Married Couples to Max Out Retirement Savings

Married couples generally have the right to claim double the retirement savings tax breaks as single individuals. Contributing as much as possible to a qualified retirement account can help you earn tax breaks and employer contributions to grow your money faster. Here's how to max out your retirement savings depending on the type of retirement account you have.

401(k) Plans

The contribution limits for 401(k) plans in 2016 are:

  • $36,000 for married couples
  • $18,000 each individual
  • Additional $6,000 if over 50 ($48,000 if both spouses are over 50)

While ideally it's best to max out both 401(k) plans if you both have a plan through your employer, this isn't always possible. In that case, I would focus first on the account with the best employer match.

Begin by checking the match each employer offers and try to maximize employer contributions. Some employers match a portion or all of their employees' contributions. Common scenarios are matching up to 3% of the employee's salary or a straight 100% match to a limit.

After you max out the employer contributions, check which 401(k) has the lowest cost funds and focus on that account.

Traditional IRAs

A traditional IRA is usually viewed as the second-best retirement savings vehicle after an employer-sponsored 401(k). The trick with traditional IRAs is you must meet income guidelines to contribute and enjoy tax breaks.

If the account owner participates in a retirement plan at work, you can only claim the full tax deduction as a married couple if your modified adjusted gross income (AGI) is less than $98,000. If you exceed the income guidelines, you can't defer income tax on your IRA contributions.

Contribution limits for traditional IRAs apply to each person, which means married couples can contribute the limit for both people.

In 2016, the contribution limits for an IRA are:

  • $5,500 per individual
  • Additional $1,000 catch-up for people 50 and older
  • $11,000 for a married couple (or $13,000 if both spouses are 50 or older)

You can contribute money into an IRA even if you have a retirement plan like a 401(k) through your employer, but you may not be able to deduct all contributions to a traditional IRA if one or both spouses participate in an employer retirement plan.

If only one spouse is working, he or she can still make an IRA contribution up to the limit on behalf of the non-working spouse.

Roth IRAs

If you have a 401(k) at work and your income bars you from contributing to a traditional IRA, a Roth IRA may be an option. Married couples must have a modified AGI of less than $193,000 to contribute to a Roth.

Unlike traditional IRA contributions, which are tax-deductible for the year in which they are made and taxed in retirement upon withdrawal, Roth IRAs offer no tax breaks for contributions but all withdrawals and earnings are tax-free.

Contribution limits for Roth IRAs are the same as for traditional IRAs:

  • $5,500 per person
  • $6,500 for people 50 and older
  • $11,000 for married couples ($13,000 if both spouses are 50 or older)

Health Savings Accounts

While not traditionally viewed as a retirement tool, a health savings account (HSA) can help you address the ever-increasing cost of health care. Married couples retiring today can expect health care costs of around $245,000 through retirement, a 29% increase from 2005, according to Fidelity.

An HSA can help you save for current health care costs along with health care expenses or living expenses in retirement.

A health savings account is a tax-exempt account that can be used to pay medical expenses. While IRAs and 401(k) plans can give you tax breaks or tax-deferred contributions, only a health savings account allows tax-deductible contributions with earnings and interest that grow tax-free -- while allowing you to withdraw money tax-free for qualifying expenses. This triple tax break is not found anywhere else.

As an added bonus, you can withdraw money from an HSA for any reason with no penalty after the age of 65.

Your money will grow tax-free until you need it, whether you want to pay for medical expenses (including those from any time in the past if you have receipts) or for living expenses in retirement.

Unfortunately, not everyone can qualify for a health savings account. You need to have coverage with a high deductible health care plan to open an HSA. These accounts are often offered by employers, many of which contribute to the employee's HSA as an incentive.

If you open an HSA, contribution limits in 2016 are:

  • $3,350 if you have individual coverage
  • $6,750 if you have family coverage
  • $1,000 additional contribution limit if you are 55 or older

Saver's Credit

Finally, don't forget to take into account the saver's tax credit. This credit is available to married couples who earn less than $61,500 and contribute to a retirement account. The credit can be worth anywhere from 10% to 50% of the amount you contribute to retirement up to $4,000. This means you can put your money into a 401(k) or IRA pre-tax and get the saver's credit to offset taxes.