MONEY
40 KIPLINGER’S PERSONAL FINANCE^ 02/2020we were doing things differently, but
for the benefit of both of us.”
More than 10 years later, both Deb,
who works in health care policy, and
Scott, now a partner at a law firm, are
maxing out their 401(k)s. With the
help of their financial adviser, Darren
Straniero, they’re balancing long-term
savings with shorter-term goals, in-
cluding shoring up their 529 college-
saving plans (their older daughter is
in high school) and planning a bat
mitzvah for their younger daughter.Save Wisely For Retirement
Unlike bank accounts or credit cards,
retirement plans can never be joint.
But some couples fall into the trap of
saving for themselves rather than for
the household. A 2019 study by the
Center for Retirement Research at
Boston College found that dual-earner
couples run into trouble when one
doesn’t have a workplace retirement
plan, such as a 401(k). The spouse with
the workplace plan often neglects to
save enough for two to live on in re-tirement, even though the couple has
the advantage of two incomes. “People
act like individuals no matter what,”
says Geoffrey Sanzenbacher, who co-
authored the study. His recommenda-
tion: Couples should stash a total of
10% to 15% of their household earnings,
rather than their personal earnings,
in retirement accounts.
Once you and your spouse have
worked out how much to save, dig into
the strengths and weaknesses of each
of your plans. When Ann Gugle, a
certified financial planner with Alpha
Financial Advisors in Charlotte, N.C.,
meets with married clients, she’ll
scrutinize the summary plan descrip-
tions for each spouse’s retirement
account. “The summary plan descrip-
tion is often overlooked, but it is a
gold mine of information,” says Gugle.
These documents can be long, so she
recommends focusing on the sections
that describe your contribution op-
tions and matches. For example, one
of you may have a less-generous match
or access to a Roth option.After setting aside enough money
so that each of you gets the employer
match, if any, compare the menu of
investment options, fees and any ad-
vantageous features to decide how you
and your spouse should allocate your
income. That’s especially important if
you can’t afford to max out your plans.
(The limit for 401(k) and most other
workplace retirement plans is $19,500
in 2020, with catch-up contributions
of $6,500 for those 50 or older.)
Say one spouse has a huge array of
investments to choose from and the
other has more-limited options. Start
by picking the best of those limited
funds—even if they are all, say, small-
cap stock funds or international stock
funds—and fill in the gaps from the
other spouse’s menu of investments
to balance out your overall portfolio.
Consider opening a Roth IRA as
well. You invest in a Roth with after-
tax dollars, and your money continues
to grow and compound free of taxes.
Withdrawals are also tax-free once
you reach age 59½ and you’ve held
the Roth for five years. If you and your
spouse file your taxes jointly, you can
each contribute up to $6,000 to a Roth
IRA in 2020 ($7,000 if you are 50 or
older) as long as your combined modi-
fied adjusted gross income is less than
$196,000. The contribution limits then
start to phase out, before disappearing
completely once your MAGI hits
$206,000.
If your income is too high for a Roth
IRA, you may be able capitalize on af-
ter-tax or Roth savings in your 401(k),
where you don’t need to worry about
income limitations. If only one spouse
has access to a Roth 401(k), consider
focusing on the Roth for that spouse
and traditional pretax savings for the
other spouse, says Gugle. Or, some plans
may allow employees to save after-tax
money once they have maxed out their
pretax deferrals, up to an overall limit
of $57,000 in 2020 ($63,500 if you’re
50 or older). Depending on your plan,
you may be able to roll that money into
a Roth IRA each year as an in-service
distribution.KipTipHow Your Credit Affects Your Spouse
Your credit scores and reports reflect your personal credit history. But your credit-
worthiness can affect your spouse, and vice versa, depending on which loans you
apply for together.
When applying for a mortgage as a couple, lenders will often pull your three
credit scores—from Equifax, Experian and TransUnion—and use the middle score
to assess your credit risk. For other types of loans, lenders may pull only one score
per applicant and rely on the lowest score, or weight the scores. Either way, if one
spouse has a high score and one has a poor score, the pair could end up paying a
higher rate.
One solution: Let the spouse with the higher score take out the mortgage loan or
buy the family car, assuming he or she has enough income to qualify. “Some people
think that idea is absurd, because you’re a married couple and one cohesive unit for
everything,” says credit expert John Ulzheimer, formerly of FICO and credit bureau
Equifax. “But the only reason to apply jointly is if you need two incomes to qualify.”
Your credit score, along with your claims history, can also affect your insurance
premiums if you combine home or auto insurance policies with your spouse. “If you
have a fantastic credit history but tend to file claims, that could override your repu-
tation and vice versa,” says Ulzheimer. Shop for auto policies both together and
separately to see which wins out. (For advice about improving your credit score,
see “8 Ways to Boost Your Credit Score,” Aug.)