Spending in retirement is a team sport, so saving should be too. – Getty Images
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I am 62 and retired. I just got my first Social Security check. My wife is 53 and still works. I have all the retirement accounts — SEP IRA, 401(k), traditional IRA, Roth IRA. My question is: Can I keep contributing each year to my Roth IRA even though I am not working? I’m not considering a Roth conversion.
Retired Saver
Retirement saving for married couples is a team sport. You can keep contributing to a Roth IRA as the spouse of a working person, because the main rule for the contributions is that they have to come from earned income. There’s no age limit for this as long as somebody in the household is earning income from work.
You still have to meet the other requirements, though, especially the income phaseout that starts at $242,000 for a married couple and taps out after $252,000. You also have to have enough combined earned income to be equal to or exceeding the total contributions you both make.
The more you can save as a couple, the better, so don’t stop with just thinking about a Roth contribution for yourself and managing the many retirement accounts in your own name. You want to think globally, across both of your spreads of savings, to see if there’s more you could be doing.
It can be hard to shift to this mindset. When we save for retirement, it’s typically a solo endeavor that comes out of your paycheck and goes into an account labeled as “individual.”
But your retirement spending is joint: You’ll have one housing payment, one food bill, one set of household utilities. You’ll go on trips together and buy presents for the grandkids as a combined force, even if one of you is better at making the arrangements for that kind of thing.
When you make a retirement goal, you have to do it together. The key component will be how much income you’ll need each year to provide for your needs and maintain your lifestyle. Then you back into how much you need to save today to make sure you have that kind of cash on hand later on.
How you get there can take many roads. You worked and saved a few different ways already. Now that you are retired, you can consolidate that into two buckets if that makes it easier for you — your pretax money from your qualified accounts like the SEP IRA, traditional IRA and 401(k), and your post-tax Roth IRA.
You need to add to that the money your wife has set aside too — not consolidated into your accounts, but melded together in your mental and physical accounting. All of your pretax money will eventually be subject to required minimum distributions, and you’ll need to consider both your withdrawals and hers in your tax planning. Your Roth balances can provide some tax diversification because you won’t have to consider those as income.
Thinking globally means considering more than just making a $7,500 Roth contribution and a $1,100 catch-up contribution for you, based on your wife’s work record. What about maximizing the amount your wife contributes to her retirement accounts now? That might even go beyond the amount you expect from her paycheck for your current living expenses. Cut it down to the bare bones so you can stuff away as much as possible, maybe in a Roth 401(k) with catch-up contributions, while you take money out of your 401(k) or IRA as your regular spending.
The merit of that would depend, of course, on the amounts we’re talking about here. If your wife is a high-earner and you’re in the 37% tax bracket, this wouldn’t make any sense. Instead, she’d likely want to max out her pretax contributions. You’d have enough income left over from her pay to cover your expenses, so you wouldn’t need to touch your retirement accounts unless you wanted to. But then, of course, you’d be over the income limit to make a spousal Roth IRA contribution.
At the same time as you play this team sport, you have to think a little defensively, because divorce happens. If you live in a community-property state, where married couples split most assets, your retirement money is considered in a joint pot together. In a separate-property state, you would still likely end up with a settlement that reallocated your funds — maybe not exactly in half, but not along the lines of “what’s mine is mine.”
Either way, you have to contemplate what your retirement-income options would look like if you only had access to half of what you have today. In this kind of situation, you might still want to take the same approach of maximizing how much your spouse saves while she is still working. The more you have pooled together, the bigger each half will be.
Death also happens. Most married couples usually have to list their spouse as the beneficiary on retirement accounts, or get a “spousal waiver” to list somebody else. So instead of half in the case of divorce, one of you will eventually end up with all of the accounts as their own. This can create what the industry calls a “tax explosion” for the surviving spouse, because that person will end up with a big balance and a single person’s tax rate.
Your wife is nine years younger, but you never know what life will throw at you. Think through what your financial picture would look like down that road. Likely, the best scenario is still to maximize the amount you save today.
The last step would be to take a break and think about something good. You’re a diligent saver who has a great opportunity to retire at a young age. Find something you enjoy and make the most of it.
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