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Retirement Planning For Dual-Income Households

Julia A. Peloso-Barnes of Morgan Stanley Wealth Advisors.
Julia A. Peloso-Barnes of Morgan Stanley Wealth Advisors. Photo Credit: Contributed

NEW YORK -- The typical American family reflected in iconic television shows of the 1950s and 1960s, in which the husband went off to work each morning and the wife happily played out the role of homemaker, is firmly in the minority.

By 2012, the Bureau of Labor Statistics reported that six in 10 families with children have two working parents. What's more, the majority of Americans feel they need dual incomes in order to reach their financial goals.2 For a major goal like retirement, working couples need to be especially vigilant to coordinate their planning efforts in a way that supports their combined accumulation objectives. As you and your spouse execute your joint retirement strategy, keep some of the following tips in mind.

IRA Contributions and Deductibility

In 2015, you and your spouse can each contribute $5,500 to a traditional or a Roth individual retirement account (IRA), if you have sufficient taxable compensation (or earned income from self-employment).2 If you are age 50 or older, you can direct an additional $1,000 to your IRAs for a combined total of $13,000. Your eligibility to contribute to a Roth IRA is dependent on your filing status and modified adjusted gross income for the year. You also may be able to deduct all or a portion of your traditional IRA contributions if you satisfy Internal Revenue Service guidelines. For example, if you file a joint tax return, and neither spouse is covered by an employer-sponsored retirement plan, traditional IRA contributions are generally fully deductible up to the annual contribution limit.

If you both are covered by an employer-sponsored retirement plan, traditional IRA contributions will be fully deductible if your combined adjusted gross income (AGI) is $98,000 or less. The amount you can deduct begins to phase out if the combined AGI is between $98,000 and $118,000, and no deduction is allowed if it is equal to or exceeds $118,000.

Similarly, if one spouse is covered by an employer-sponsored retirement plan and the spouses file a joint federal income tax return, the spouse who is not covered by an employer-sponsored retirement plan may qualify for a full traditional IRA deduction if the combined AGI is $183,000 or less. Deductibility phases out for combined incomes of between $183,000 and $193,000, and is eliminated if your AGI on a joint return equals or exceeds $193,000. Note, however, Roth IRA contributions are not income tax deductible.

Coordinating Multiple Accounts

Like any investment portfolio, retirement accounts should work in unison to help you pursue a specific accumulation goal. However, with job changes so prevalent, it is likely that a couple may have multiple retirement accounts, including 401(k), 403(b), or 457 plans, rollover IRAs and possibly defined benefit plans. Because of the range of investment options offered under such plans, it is important to keep the big picture in mind in order to maintain a coordinated investment strategy. As you review your accounts, ask the following questions:

  • Is your overall asset allocation in line with your objectives and risk tolerance?
  • Are the portfolios adequately diversified? Are they overweighted (or underweighted) in any one asset class or individual security?
  • Do the portfolios complement your other investments (e.g., taxable investment accounts, real estate and other assets)?
  • Consider the fees associated with your retirement accounts and how they might affect returns. Would it make sense to consolidate some accounts to help minimize these costs?

Next week, we'll talk more about Retirement Planning for Dual Income Couples: Retirement Distributions and Social Security


1 Forbes, "4 Dual-Income Households Tell All: How We Save and Spend," November 4, 2013.

2 If an individual has more than one IRA, the limits apply to the total contributions made in the aggregate to all the Traditional and Roth IRAs an individual owns.

3 A Roth Conversion may not be right for everyone. There are a number of factors taxpayers should consider before converting, including (but not limited to) whether or not the cost of paying taxes today outweighs the benefit of income tax-free Qualified Distributions in the future. A 10% penalty tax will apply on funds converted to a Roth IRA, if those funds are withdrawn before five years have elapsed unless the owner is age 59 ½ or another exception applies. Before converting, taxpayers should consult their tax and legal advisors based on their specific facts andcircumstances.

Asset allocation and diversification do not assure a profit or protect against loss in declining financial markets.

If you’d like to learn more, please contact Julia A. Peloso-Barnes , CFP®, CPM®, ADPA®, CPRC®

Article by Wealth Management Systems Inc. and provided courtesy of Morgan Stanley Financial Advisor.

The author(s) are not employees of Morgan Stanley Smith Barney LLC ("Morgan Stanley"). The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley. The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley.

Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

Alternative investments often are speculative and include a high degree of risk. Investors could lose all or a substantial amount of their investment. Alternative investments are suitable only for eligible, long-term investors who are willing to forgo liquidity and put capital at risk for an indefinite period of time. They may be highly illiquid and can engage in leverage and other speculative practices that may increase the volatility and risk of loss. Alternative Investments typically have higher fees than traditional investments. Investors should carefully review and consider potential risks before investing. Certain of these risks may include but are not limited to:

Loss of all or a substantial portion of the investment due to leveraging, short-selling, or other speculative practices; Lack of liquidity in that there may be no secondary market for a fund; Volatility of returns; Restrictions on transferring interests in a fund;

Potential lack of diversification and resulting higher risk due to concentration of trading authority when a single advisor is utilized; Absence of information regarding valuations and pricing; Complex tax structures and delays in tax reporting; Less regulation and higher fees than mutual funds; and Risks associated with the operations, personnel, and processes of the manager.

As a diversified global financial services firm, Morgan Stanley Wealth Management engages in a broad spectrum of activities including financial advisory services, investment management activities, sponsoring and managing private investment funds, engaging in broker-dealer transactions and principal securities, commodities and foreign exchange transactions, research publication, and other activities. In the ordinary course of its business, Morgan Stanley Wealth Management therefore engages in activities where Morgan Stanley Wealth Management’s interests may conflict with the interests of its clients, including the private investment funds it manages. Morgan Stanley Wealth Management can give no assurance that conflicts of interest will be resolved in favor of its clients or any such fund.

Morgan Stanley Financial Advisor(s) engaged Daily Voice to feature this article.

Julia A. Peloso-Barnes may only transact business in states where she is registered or excluded or exempted from registration . Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where Julia A. Peloso-Barnes is not registered or excluded or exempt from registration.

© 2015 Morgan Stanley Smith Barney LLC. Member SIPC.

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