Though it is not nearly as common as it was decades ago, some families have only one wage-earner. A one wage-earner family presents a different situation when it comes to retirement income in two fashions: 1) when saving for retirement; and 2) when making choices in how to receive your retirement income.
A non-working spouse is unable to save money for retirement through an employer sponsored retirement plan (such as the TSP). That’s $19,500 of tax advantaged savings per year that the non-working spouse cannot take advantage of (an additional $6,500 if they are 50 or older). It’s a little different with an IRA. Though a non-working spouse is not allowed to contribute to an IRA, the spouse who is working can contribute to a spousal IRA for the non-working spouse as long as their federal income tax status is married, filing jointly.
For all federal benefits, the definition of spouse includes a legally married same sex spouse.
The amount that can be contributed to a spousal IRA is $6,000 (an additional $1,000 if 50 or older). There are income limits for deducting contributions to a traditional IRA, and there are income limits on even being able to contribute to a Roth IRA, but one is allowed to make non-deductible contributions to a traditional IRA regardless of their income level. Even Bill Gates is allowed to make a non-deductible contribution to a traditional IRA. You can find the current year’s income limits, and other helpful information, in IRS Publication 590-A, Contributions to Individual Retirement Arrangements.
In addition to saving for a non-working spouse’s retirement through a spousal IRA, you could also fund a taxable account. Though there is no tax advantage to simply socking money aside in an account where you pay your taxes as you go, there is also no limit on how much you may set aside, nor is there anything that would limit your ability (e.g., level of income, etc.) to do so.
When it comes to taking retirement income, you want to make sure that your spouse is protected too. You would certainly have him/her as the beneficiary on your TSP account and other accounts like your FERS pension. (If you haven’t checked your beneficiary forms lately, this might be a good time to do so). In planning the payments you will receive from your TSP, remember that you are looking at a joint life expectancy (you and your spouse), not a single life expectancy and make your withdrawals accordingly. This might mean that you withdraw more cautiously than you originally thought you could.
As those who read this newsletter are federal employees or retirees, you also want to look at the survivor benefit choices you have with your FERS or CSRS pension as well. Someone with a non-working spouse is likely to make a different decision when the time comes to choose a survivor annuity at retirement. Check the FEDweek newsletter for articles about survivor benefits as they apply to FERS and CSRS.
Your spouse is an important part of your life, whether he/she has an outside job or not. Be sure you consider their needs in your financial planning for retirement.