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401(k) plans. If you and your spouse both have 401(k) accounts through your jobs, you can each defer paying taxes on $18,000 in 2016, or as much as $36,000 as a couple. And once you turn age 50 or older, you can each contribute an additional $6,000 to a 401(k). A married couple, both over 50 and with a 401(k) account at work, could potentially defer paying income tax on as much as $48,000 in a single year.
However, if you can't afford to max out your 401(k) accounts
through both of your employers, you need to be more strategic in your
saving. First, look at the match each of your employers offers, and aim
to capture any company contributions that are provided. Once you have
gotten the match, compare the fees on each of your accounts, and do
additional saving in the 401(k) account that provides the lowest cost
funds. "If one person has a match up to 3 percent and another person has
a match up to 10 percent, you probably want to try to get both of those
matches," says Katie Brewer, a certified financial planner for Your
Richest Life in Garland, Texas. "It's good to look at the plan fees and
also the fees of the internal investments."
IRAs. Workers can contribute up to $5,500
to an individual retirement account in 2016, and the limit jumps to
$6,500 for people age 50 and older. Married couples can contribute that
amount in each of their names and defer paying income tax on $11,000 if
they are 49 or younger, and an additional $1,000 for each member of the
couple who is 50 or older. If only one spouse works, the working spouse
can make an IRA contribution on behalf of the non-working spouse. "If
you don't have income, you can't put money in an IRA, unless you are a
spouse of someone who has income. Then you can do a spousal IRA," says
Francine Duke, a certified financial planner for Aqua Financial Planning
in Chicago. You can't open a joint IRA in both of your names, but you
can name each other as the beneficiary of the account.
However,
your ability to claim a tax deduction for your IRA contributions is
limited if you have a 401(k) account at work and your modified adjusted
gross income as a married couple is $98,000 to $118,000. If only one
member of the couple has a workplace retirement account, the ability to
claim a tax deduction on an IRA contribution is phased out for couples
earning between $184,000 and $194,000 in 2016. Couples who earn more
than that can't defer paying income tax on an IRA contribution.
Roth IRA.
If you have a workplace retirement account and your income makes you
ineligible to contribute to a traditional IRA, you may still be able to save in a Roth IRA.
Couples are eligible to make a Roth IRA contribution until their
adjusted gross income is between $184,000 and $194,000. While a Roth IRA
contribution won't get you an immediate tax break, the earnings in the
account will grow without tax and you could qualify for tax-free
distributions in retirement. "It's beneficial to utilize the Roth
account when your earnings are very low and the tax deduction is not
going to be as necessary," says Jamie Block, a certified financial
planner for Wealth Design Retirement Services in Rochester, New York.
Saver's credit. Married couples who earn less than $61,500 and contribute to a retirement account are eligible for the saver's credit.
This tax credit is worth between 10 and 50 percent of the amount
contributed to a retirement account up to $4,000 for couples. "You put
the money in your 401(k) pretax, and then you also get the saver's
credit, which offsets any tax that you owe," Block says. "The government
gives you this credit to incentivize people to save for retirement."
Culled from US News
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