Can Both Spouses Contribute to 401k and Boost Retirement Savings

You can definitely boost your retirement savings by having both spouses contribute to a 401k. Married couples can double their retirement savings by contributing to a 401k.

Each spouse can contribute up to $19,500 in 2022, and if one spouse has a high-income job, the other spouse can contribute even more to take advantage of the higher income limit.

Discover more: Is a Savings Plan the Same as a 401k

To be eligible to contribute to a 401(k), you must be employed by a company that offers a 401(k) plan. Your employer must also allow you to participate in the plan.

The participation rules vary depending on your employer's plan, but generally, you'll need to meet certain eligibility requirements, such as completing a probationary period or reaching a certain age.

To be eligible to participate in a Solo 401(k) plan, you must have earned compensation income from the business.

Any business owner with at least a 5% share of the business is eligible to participate in a Solo 401(k) plan.

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An owner's spouse is eligible to participate, as long as they are a compensated employee of the business.

A spouse can be employed by the business on a part-time or full-time basis.

Simply being an owner without compensation does not enable a person to participate in a business's 401(k) plan.

Here's an interesting read: Can Part Time Employees Contribute to 401k

If you and your spouse are both self-employed but have separate businesses, you can still establish a Solo 401(k) plan. This is possible because your businesses can jointly sponsor a single plan.

You can contribute to the plan based on income from your respective business, so you don't have to worry about being tied to a single business's income.

For another approach, see: Solo 401k for Single Member Llc

You can contribute to a Solo 401(k) based on your business compensation, and the amount is discretionary, so you can choose how much to contribute.

Employee contributions are shared across plans if you're also employed by another employer offering a 401(k) or similar plan.

Employer profit-sharing contributions must be made in the same percentage to all eligible plan participants, based on their share of the business income.

You can contribute to a 401(k) based on your business income, but there are some rules to keep in mind.

Employee contributions to a 401(k) are discretionary, meaning you can choose whether or not to contribute.

If you're also employed by another employer with a 401(k) or similar plan, your individual contribution cap is shared across plans.

Employer profit-sharing contributions must be made in the same percentage to all eligible plan participants based on their share of the business income.

You can't choose to contribute to just one spouse or contribute at different levels to each spouse.

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You can't have a joint retirement account, unlike a joint bank account. Each type of retirement account, such as an IRA or 401(k), is strictly owned by one person.

One thing to keep in mind is that IRAs are individual accounts, and the IRS doesn't permit them to be shared between spouses or any other individuals. Each person must open and maintain their own IRA to take advantage of the tax benefits.

Consider reading: Can One Business Have 2 Solo 401k

401(k)s and other workplace retirement plans are also individual accounts, tied to the individual employee. While spouses can be beneficiaries, they can't be joint owners.

If both spouses want to participate in a 401(k) plan, each must have their own account through their respective employers. This is because each account is owned by one person only.

A common mistake couples make is failing to coordinate their 401(k) savings, with 1 in 4 married households not doing so.

This can cost couples plenty, with researchers estimating that households that fail to coordinate could be giving up $700 a year.

If you and your spouse both contribute to a retirement plan, prioritize the plan with the most generous matching contribution.

The spouse with the most generous match should aim to contribute enough to get the maximum matching contribution, even if that means the other spouse contributes less to their plan.

Failing to do so can result in lost money, with the researchers estimating that this could work out to more than $30,000 over 20 years, assuming a 6% annualized return on the investment money.

Related reading: Best Retirement Plans for Married Couples

Coordinating with your spouse can make a big difference in your retirement savings. One in 4 couples could have received an average of $682 more each year through employer matching by coordinating better with their spouse.

This extra money can add up over time. If you have $682 a year every year with compound interest, this can amount to quite sizable resources in retirement.

Even couples who work for the same employer can miss out on savings. They may not maximize their contributions efficiently, which can lead to leaving money on the table.

Couples with strong indicators of marital commitment tend to coordinate better. This includes having a joint bank account and owning a home together.

Here's a breakdown of the potential savings:

These savings can make a big difference in your retirement planning. By coordinating with your spouse, you can potentially increase your employer matching and build a more secure financial future.

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A majority of U.S. workers have access to 401(k) plans, with over 4 in 5 plans offering some sort of employer match.

This means that if you contribute to your 401(k) plan, your employer will contribute an amount to the plan as well, which can be a significant benefit.

Not every match is the same, and the research suggests that some matches are more beneficial than others.

For example, if one spouse has a dollar-for-dollar employer match up to a cap, and the other spouse has a 50-cents-on-the-dollar match, the efficient allocation at the household level is to fully exploit the match offered to the first spouse before making any contribution to the second spouse's account.

This can help you maximize your retirement savings by taking advantage of the better match.