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Can Married Couples Combine IRAs?

Posted by Jim Kantowski, CFP®, CPA on November 19, 2020

Can Married Couples Combine IRAs?

Most married couples today choose to combine their finances for simplicity’s sake and to work towards one common goal. (Although, if your spouse has ever asked you to cut back on your online shopping, you may wish you had a separate bank account!) In all seriousness, clients often ask us, “Can married couples combine IRAs?” The straightforward answer to this question is no.

In this blog post, we’ll explore why it’s not possible to combine individual retirement accounts (IRAs), and the financial planning options married couples should consider pursuing instead. Hint: Streamlining your accounts isn’t always the way to go.

Can married couples combine IRAs? Why The Answer Is No

In this case, the name says it all: individual retirement account. Married couples can’t combine IRAs because these accounts are governed by specific rules around when you must begin withdrawing your money, based on your age and how the funds are distributed to heirs after you pass away.

You’re required to start taking money out of your IRA at age 72. The amount you must withdraw is based on a life expectancy calculation; and you have to pay tax on the money you take out of the account.

Can I transfer my IRA to my spouse?

In the event of your death, your IRA can be rolled over to your spouse as your beneficiary. If your spouse has also passed away, the account can be rolled into an inherited IRA for your your contingent beneficiaries—for example, your children—and in most cases the funds must be withdrawn within 10 years

Are you and your spouse in need of a financial road map to reach your goals? Schedule a call with Bay Point Wealth to learn how our advisors can guide the way.

Alternatives To Combining IRAs

If your objective is to streamline your finances as a couple for the sake of convenience, it’s completely understandable that you would want to consolidate IRAs. However, since this is not possible, there are some other steps you can take. Let’s explore a few avenues.

Hold A Variety Of Account Types

While you may be looking to simplify your finances, oversimplification could rob you of some of the benefits that come from holding different account types. Various kinds of accounts serve different purposes, and should be considered as part of the financial planning process.

We advise our clients to hold the following account types:

  1. Pre-tax accounts including IRAs or company retirement accounts, also known as 401(k)s—The benefit of this type of account is that you get a tax break on the money you put into it (but are taxed when you withdraw the funds).
  2. Post-tax accounts such as Roth IRAs—In contrast to a traditional IRA, you’ll pay tax upfront on your Roth IRA contributions, not when you take money out. This kind of account is a good choice if you expect to be in a higher tax bracket later in life.
  3. Non-retirement accounts like after-tax savings accounts—These provide you with the flexibility to withdraw money at any time and are not subject to a penalty if withdrawn prior to age 59 ½. If you think you may decide to retire early, you should have these accounts.

Each Combine Your Own Accounts

You might also be wondering, “Can spouses combine 401(k) accounts?” While the answer is still no (sorry!), if you hold a variety of pre-tax, post-tax, and non-retirement accounts, you can combine your own accounts within these respective categories to simplify your finances. Your spouse can do the same.

For example, if you have a company retirement account and you are no longer employed at the company, you can roll these funds over into an IRA in your name. You can even combine multiple IRAs and 401(k)s under your name into one IRA. However, it’s not possible to combine IRAs and Roth IRAs because these accounts are taxed differently.

Pro Tip: As fiduciary financial advisors, we’d like to point out one potential advantage to leaving money in a 401(k) if you retire early.

You may want to keep your 401(k) and your IRA separate, because you can withdraw money from your 401(k) as early as age 55 without paying a penalty, whereas if you take money out of an IRA before age 59 ½ you’ll have to pay a 10% penalty. While this may not be a concern for you personally, it’s worth knowing about.

Consolidate Your Accounts At One Financial Firm

If you’re set on simplicity, hey, we don’t blame you! We believe every married couple (and every individual, for that matter) should have their money managed by a single advisor or company. It just makes your life easier, and enables you to have one consistent objective.

If you and your spouse currently work with different financial firms, one way to streamline your finances is to consolidate your accounts at one institution. The only question left: Which one to choose?

Bay Point Wealth Offers Financial Planning For Couples

We understand it can be tough to get a handle on how your money is invested—and even how much you have—if your funds are spread across a bunch of different accounts.

We can help you simplify your finances (to the extent that it’s the right approach for your situation), and help you assess your overall financial picture to create or adapt a financial plan that works for you and your spouse. Schedule a call with our team, and let’s talk.

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Topics: Financial Planning