Retirement Planning for Unmarried Couples

One of the fundamental concepts of the IRA structure is that it is, by its very nature, an account for individuals, which bodes well for unmarried couples.  There’s no such thing as joint IRAs that can be used for married couples. But that isn’t to say that a person’s marital status is irrelevant when it comes to the rules governing their IRAs, and the decisions that a person makes in light of those rules. In fact, in some situations being married can provide significant financial advantages to the account holders, over unmarried couples.

The rules for married couples don’t extend to unmarried couples, so the best way to illustrate the differences between how married couples and unmarried couples are treated differently is to compare them directly.

Retirement planning for unmarried couples: Earned Income Requirements. For married couples, the earned income requirements for each person to contribute to their own accounts can be met by the couple’s joint earned income. For example, in order for each spouse to contribute $5,500 to their own IRA, the couple satisfies this requirement if one spouse has at least $11,000 of earned income during the year for which they want to make the contributions. This means that even if only one spouse works, while the other stays home to take care of the children, both can contribute to their own IRAs.

In contrast, each person looking toward retirement planning for unmarried couples must have their own earned income in order to contribute to their IRA. So if the couple in the above example was an unmarried couple, only the working spouse could contribute to their IRA, while the non-working spouse would not be able to make a contribution.

Retirement planning for unmarried couples: Eligibility for Deductible Contributions. Let’s again consider a married couple where one spouse works, while the other stays at home. If the working spouse also participates in an employer sponsored retirement plan such as a 401(k), then they can make a deductible contribution to their IRA if their modified adjusted gross income is less than $95,000 (assuming that the couple’s tax filing status is “married filing jointly”).

In contrast, if that same individual is part of an unmarried couple (i.e., if each files a tax return with a “single” status) then he or she could only make a fully deductible contribution if their modified adjustable gross income for the year is less than $59,000. This means that the unmarried individual is at a significant disadvantage when it comes to being eligible for this tax benefit.

Retirement planning for unmarried couples: Eligibility for Roth Contributions. Similarly, a married person has greater flexibility when it comes to being eligible for making contributions to a Roth IRA. Let’s again consider the couple from our previous examples, where one person works full time and the other does not work. In order to make the maximum contribution to a Roth IRA, the working spouse’s modified adjusted gross income must be less than $178,000. In contrast, a single person (even if that person is part of an unmarried couple) must have an income of less than $112,000 in order to make a full contribution to their Roth IRA.

Regardless of your marital status, it’s important to understand exactly how much you’re eligible to contribute to your traditional and Roth IRA accounts each year so that you can help those accounts grow as large as possible by the time you retire.

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