: Do individual retirement account balances matter for a married couple? Do individual retirement balances matter for a live-happily-ever-after married couple? Say both spouses qualify for a workplace retirement plan. Spouse

Vote Up Vote Down   0 Reactions

Login to give Reaction!

I would also choose 1 in that instance, up until Spouse A reaches maximum contribution, then contribute to B anyway because the tax savings still probably outweigh the lack of match and poor fund options.

Of course this is overlooking a lot of other things, like the tax situation of the couple, and IRA accounts.

These days many career-minded folks can't stay at a single job for all that long, so Spouse B's poor fund choices can end up moot since after a few years the (hopefully sizable) balance can be rolled over into an IRA where the funds can be chosen at will.

Vote Up Vote Down   0 Reactions

Login to give Reaction!

I'd suggest an option 4:
Contribute to 401k accounts only up to the match, then switch to a Roth IRA for either or both spouse, and only when you've reached the cap should you go back and contribute to the 401k - choosing the one with the best options before switching to the other.

The reason for the Roth IRA is that it will give you more options than either of the 401k options, is not tied to an employer, and gives you options for withdrawing your contributions that can act as a handy back-up emergency fund.

Vote Up Vote Down   0 Reactions

Login to give Reaction!

I raised a comment on the original question about required minimum distributions (RMD).

I did a little spreadsheet to answer my own question to my own satisfaction about RMD. There is a function-of-age component of calculated RMD after age 70.5, with a lookup table published here:
www.irs.gov/pub/irs-tege/uniform_rmd_wksht.pdf
One-liner:
If the spouses are different ages, and you have a goal to maximize your estate, option 2 or 3 can be valid because of RMD. 8 additional years of tax deferral in the younger spouse's account before RMD can be worth the 1% spread in returns.

Motivation:
One of the known gotchas of RMD (which applies to 401k and trad IRAs but not Roth IRAs) is that it can force you into higher marginal tax brackets year over year by a process that you have no control over in retirement. If stacked on social security or other sources of income, this will reduce the marginal value of your IRA in the future, or cause taxable capital gains or dividends to be taxed at much greater than 10-15%. If you are on the cusp of "upper middle class" this is something to consider; if you are aiming for the middle of middle class, you will probably need more than RMD to live on anyway, and thus this less of a consideration for you. Congress could always change the capital gains rates back or do another wholesale Gramm-Rudman style overhaul, enact Mike Huckabee's FairTax, etc. so compared to other answers, this is both esoteric as well as making decisions for 40 years from now on top of the sandy clay that is US tax policy. That said:

Summary:
Based on assumption of a 1% spread in returns for each spouse, a split can be sensible for the goal of estate maximization and retirement income bracket gaming with an age spread of around 8 years (so if one spouse is 40, and one is 32, they ought to split; either option 2 or option 3 in the OP). The 8 additional years of tax deferral in the younger spouse's account before RMD are worth the 1% spread in returns.

If the spouses are the same age or spouse A is younger, maximize on spouse A.

I hope the screenshot is self-evident, but I can elaborate. The lines mark hidden years.