BY DAVID L. CUMMING
The typical American family reflected in
iconic television shows of the 1950s and 1960s,
in which the husband went off to work each
morning and the wife happily played out the
role of homemaker, is firmly in the minority.
By 2012, the Bureau of Labor Statistics reported
that six in 10 families with children have
two working parents. What’s more, the majority
of Americans feel they need dual incomes in
order to reach their financial goals.
For a major goal like retirement, working
couples need to be especially vigilant to coordinate
their planning efforts in a way that
supports their combined accumulation objectives.
As you and your spouse execute your joint
retirement strategy, keep some of the following
tips in mind.
IRA Contributions and Deductibility
In 2015, you and your spouse can each
contribute $5,500 to a traditional or a Roth individual
retirement account (IRA), if you have
sufficient taxable compensation (or earned
income from self-employment). If you are age
50 or older, you can direct an additional $1,000
to your IRAs for a combined total of $13,000.
Your eligibility to contribute to a Roth IRA is
dependent on your filing status and modified
adjusted gross income for the year.
You also may be able to deduct all or a portion
of your traditional IRA contributions if
you satisfy Internal Revenue Service guidelines.
For example, if you file a joint tax return, and
neither spouse is covered by an employer-sponsored
retirement plan, traditional IRA
contributions are generally fully deductible up
to the annual contribution limit.
If you both are covered by an employer-sponsored
retirement plan, traditional IRA
contributions will be fully deductible if your
combined adjusted gross income (AGI) is
$98,000 or less. The amount you can deduct
begins to phase out if the combined AGI is between
$98,000 and $118,000, and no deduction
is allowed if it is equal to or exceeds $118,000.
Similarly, if one spouse is covered by an
employer-sponsored retirement plan and the
spouses file a joint federal income tax return,
the spouse who is not covered by an employer
sponsored retirement plan may qualify for a
full traditional IRA deduction if the combined
AGI is $183,000 or less. Deductibility phases
out for combined incomes of between $183,000
and $193,000, and is eliminated if your AGI
on a joint return equals or exceeds $193,000.
Note, however, Roth IRA contributions are not
income tax deductible.
Coordinating Multiple Accounts
Like any investment portfolio, retirement
accounts should work in unison to help you
pursue a specific accumulation goal. However,
with job changes so prevalent, it is likely that a
couple may have multiple retirement accounts,
including 401(k), 403(b), or 457 plans, rollover
IRAs and possibly defined benefit plans.
Because of the range of investment options
offered under such plans, it is important to
keep the big picture in mind in order to maintain
a coordinated investment strategy. As
you review your accounts, ask the following
Is your overall asset allocation in line with
your objectives and risk tolerance?
Are the portfolios adequately diversified?
Are they overweighted (or under weighted)
in any one asset class or individual security?
Do the portfolios complement your other
investments (e.g., taxable investment accounts,
real estate and other assets)?
Consider the fees associated with your retirement
accounts and how they might affect
returns. Would it make sense to consolidate
some accounts to help minimize these costs?
Couples nearing retirement need to decide
the timing of retirement account distributions
in light of their income needs, tax situation
and market dynamics. Among the issues to
Tapping taxable and tax-deferred accounts.
Conventional wisdom suggests that tapping
taxable accounts first enables your tax-deferred
accounts to continue compounding longer–
and potentially growing larger–over time.
However, there are also those who argue that
waiting longer to tap tax-deferred accounts
could result in larger required minimum
Converting a traditional IRA to a Roth IRA,
allowing you to put off distributions as long as
possible and/or receive tax-free income.
If one or both spouses are covered by a
defined contribution (DC) and/or a defined
benefit (DB) pension plan, you will typically
be given several pay-out options to consider.
These may include:
A single life or joint life annuity – Typically
the distribution method of choice for DB plans,
a single life option, pays out a fixed benefit for
your lifetime; the joint life option continues
paying some portion of the benefit upon death
to another party, typically the surviving spouse.
DC plans may also offer the option to annuitize,
convert all or a portion of the account balance
to a guaranteed stream of income for life.
A lump-sum payment – Typically an option
for both DB and DC plans, in which the full
value of the account is paid out upon retirement.
It is up to you to then decide whether
and how to reinvest the proceeds.
You can begin receiving Social Security
payments as early as 62, although delaying the
election increases the monthly total. Married
couples may want to consider first tapping one
spouse’s benefit and delaying the other one’s
until age 70, which maximizes the income and
may substantially increase the couple’s total
Social Security payout over a lifetime.
Determining when and how to claim Social
Security benefits is a complex matter involving
many variables. Please contact me for
assistance in considering the particulars of
your situation as you and your spouse plan for
Cumming, CFP, RICP, CRPS, is a senior vice
president, financial advisor and executive financial
services director with Morgan Stanley.