A spousal Roth

Question: My company offers a 401(k) program but does not match my contribution. I am currently contributing to it but am wondering if I would be better off putting the same money (minus taxes) into a Roth IRA for my wife. She is a stay-at-home mom and I feel like she should have retirement savings in her own name. It also seems that there are advantages to the Roth that make it a better choice than an unmatched 401(k). Scott, Apex, NC

Answer: Both of you should have your own retirement savings plan. Your wife should definitely open up an IRA in her name. And for most people the tax-free withdrawals in retirement make the Roth-IRA the best option over the long haul.

I would also continue participating in your company's 401(k) even though I'm disappointed--as you are--that there isn't a match. That suggestion assumes that you like the investment choices in the plan. A big advantage of the 401(k) is larger annual contributions, $16,500 compared to a limit of $5,000 for the Roth.

You may not be able to fund both retirement plans to the maximum, at least for the moment. That's okay. It's a goal.

You'll also build up a household retirement portfolio that is tax diversified with this strategy. For instance, whether it's better to invest in a traditional 401(k) or a Roth-IRA partly depends on whether your income is higher (favor the Roth) or lower (nod to 401(k) several decades from now. Who knows? You can make an educated guess, but you can't get rid of the uncertainty. It also matters what tax brackets are several decades from now, too. Again, who really knows?

These are two major reasons why I favor tax diversification. Another is that it adds to your financial options or choices when it does come time to take money out in old age.

About the author

Chris Farrell is the economics editor of Marketplace Money.

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