Separate Roth IRAs?

Ducktale · December 2013

DH and I both have pretty good employer matching for our 401ks so that's what we end up doing with a lot of out retirement savings. We also have a separate Roth IRA that we contribute to, and its in DH's name. We don't contribute enough to max it out. Our plan was that if/when we max out the one, we'd start another in my name. However it seems a lot of what I read encourages couples to each open their own. Is this just to he able to take advantage of the tax savings (assuming you contribute more than the max on one)? Is it for security purposes in the event of a divorce? Am I missing something? Should we be splitting our contibutions into 2 IRAs for some reason?

jtmh2012 · December 2013

It's basically for security in the event of divorce.

lifeonthehill · December 2013

DH brother works in accounting and I asked him this once. He told me one IRA is fine but turned around and told DH to make sure it is in his name so I can't walk away with it if I "change" my mind. We will have a combined one.

hoffse · December 2013

Well... first, Roth IRAs can't be joint. So yeah, if you get divorced than the IRA goes to whoever's name is on the account. It's a personal asset of sorts.

I think most people have separate ones because it grows tax-free, and as long as the tax laws don't change it's usually a better use of your retirement money (for anything over your employer match). I would rather have $11,000 each year grow tax free than $5,500. So H and I each have one in our names for the sole reason that it allows us to double our contributions.

The other thing is SAHM's can continue contributing to retirement in a Roth IRA, even if you aren't earning any income (so long as your spouse is). If you file your taxes jointly with your husband, then his income will be attributed to you for the purposes of making sure YOU are earning at least $5,500/year. H is a law student and didn't earn a full $5,500 in 2013 since he's been in school, but I was still able to max out his Roth IRA this year for him. We got married in April and I did earn more than $11,000 on my own. While I did wait until after the wedding to make that contribution, it didn't bother me to do it. We dated for nearly a decade. and I don't see us getting divorced, ever. So from my perspective, that contribution to his Roth will help me also when he retires.

maple2 · December 2013

In your case, it would make sense to open one in your name in the event of divorce. There is no lifetime limit on contributions, so you won't be adding any money to your account until you have more than $5,000 to contribute in a single year. Even when you start contributing to yours, the balances in each of your names will not even out unless you make a concerted effort to prioritize contributions to an IRA in your name now.

Sisugal · December 2013

IRAs (Individual Retirement Accounts) are just that INDIVIDUAL. They are for one person. You should each have your own - even if you cannot max them out - have your own.

Ducktale · December 2013

Okay. Thanks for the feedback, I was assuming that the reason was in case of a divorce. Appreciate it!

maple2 · December 2013

While I still advocate for separate and equal IRA contributions just to be safe, I do know some couples have thought about the ages of both people and used that to decide where to put their IRA money. This is because your ability to withdraw money without penalty is based on age, and people want to take that into account with their retirement planning.

Sisugal · December 2013

ROTH IRA - you can withdraw your initial contribution, but not the earnings, without penalty at any age. Traditional IRA you have to be 59 1/2 to withdraw without penalty.
An additional benefit is that you can max out 2 IRA (yours and his) so your retirement pot is larger, and will grow to more than if you only fund one IRA. Assuming of course that you can afford to max them both out.

Mom987 · December 2013

Hi! I read all the comments and will ask a question that may be common sense, but I'm still not sure: if I want to max mine $5,500 and DH opens one in his name and wants to max his $5,500, we wouldn't be allowed to do that since we file taxes jointly? Or, are we allowed to have our own $5,500 each? Thank you

Sisugal · December 2013

You are allowed to each put 5500 into your IRA each year. You can do this no matter how you file your taxes.
You get no deduction for your ROTH IRA contributions as those are made with after tax money. All earnings are tax free. Withdrawals at retirement are totally tax free.

Traditional IRA - you get a tax deduction for the tax year of deposit. When you withdraw money in retirement (after 59 1/2) then that withdrawal money is taxed - all of what is withdrawn in that tax year.

Mom987 · December 2013

Thank you sisugal!

Separate Roth IRAs?

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