Married and Retiring from 3M? Discover 6 Essential Retirement Planning Strategies for Couples

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For this reason, 3M employees should consider the Spousal IRA as a part of their retirement planning if the spouse is not working or has low income,” advises Paul Bergeron, a representative of The Retirement Group, a division of Wealth Enhancement Group.

The Retirement Group, a division of Wealth Enhancement Group, The Manager, Tyson Mavar, points out that Spousal IRAs are not fully exploited by the 3M employees as a way to boost their retirement savings.

The Basics of Spousal IRAs: In this article, the eligibility, how to set it up, and the types (Roth and traditional) of Spousal IRAs that low-earning or non-working spouses can open.

Tax Implications and Benefits: Analysis of the contribution limits, tax benefits, and possible deductions related to both types of IRAs in order to boost retirement returns.

Strategic Retirement Planning: How Spousal IRAs can be included in the overall retirement planning, including examples and tips on how to maximize the benefits of the strategy.

This is important for the financial wellness of 3M employees, especially for those who are married, and where one spouse has to stay at home to take care of the children or has a low income. The spousal IRA, a special type of IRA that enables a working spouse to save for the retirement of a non-working or low earning spouse, is a valuable but rarely used tool to increase retirement assets. These accounts can be Roth IRAs or regular IRAs, both of which have their own tax benefits.

Learn About Spousal IRAs

Spousal IRAs are traditional or Roth IRAs that are opened in the name of the spouse who earns less or does not work at all; they are not a separate kind of IRA. To be eligible, couples must file their taxes jointly and at least one spouse must have taxable income. It is quite easy to set up a Spousal IRA in the same way as one would set up a normal IRA. Due to this, many couples, including those from 3M companies, fail to take advantage of the tax advantages and increased retirement savings that are available due to Spousal IRAs.

Contribution Caps and Their Effect on Taxes

Each spouse, before the age of 50, can contribute up to $7,000 annually to an IRA in 2024; spouses over 50 can contribute up to $8,000. These contributions are based on the taxable earned income of the couple as reported on their combined tax return.

Traditional IRAs: In most cases, contribution to the traditional IRA is deductible at the time of account opening and thus offers an immediate tax advantage especially in years of high income. It grows tax deferred and is withdrawn in the retirement year.

Roth IRAs: If certain requirements are met, qualifying distributions from a Roth IRA in retirement are tax-free. Contribution to the Roth IRA is not tax deductible. Some of these include the five-year rule which states that before the earnings can be withdrawn from the account freely, the first deposit must have been made at least five years ago.

It is important for the 3M employees to know that the IRS rules on IRAs can be complicated. For example, in 2024, married couples can contribute to a Roth IRA if their modified adjusted gross income (MAGI) is $240,000 or less. In addition, the tax deductibility of traditional IRA contributions may be limited or prohibited if a spouse has an employer’s retirement plan.

Owner of Nested Financial & Tax Planning, Robin Snell says: “When it comes to deciding whether to open a Spousal IRA or not, tax issues are key. If you think you will need your money before retirement, then you may be better off saving in a taxable brokerage account because of the taxes and penalties on early withdrawals.”

Advantages for the Mind and Budget

The main advantage of Spousal IRAs is that they bring not only a financial benefit to retirement plans, but also a psychological one. “It often makes the non-working or low-income spouse feel good about the value they are bringing to the household and therefore, more inclined to be involved in the retirement savings process,” says Katherine Tierney, a certified financial planner and senior retirement strategist at Edward Jones.

This makes sure that the assets are in their name and help in the case of a divorce or widowhood to ensure that the non-working spouse has retirement money to rely on.

The Strength of Combining

This is because the power of compounding can make a Spousal IRA addition to a couple’s retirement plan make a big difference over time. “Although the extra savings may seem small, they have the potential to grow and make a big difference,” adds Cassandra Rupp, senior investment adviser at Vanguard.

This is illustrated by T. Rowe Price’s hypothetical example. Based on a Spousal IRA contribution of $7,000 per year and a 7% annual return, the earnings on the $140,000 in contributions over a 20 year period would be $167,056 with a final balance of $307,056.

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Roth or Traditional IRA: Which Is Better?

Whether to choose a Roth or a traditional IRA is dependent on the financial goals and current tax status of the couple. Traditional IRAs may be more advantageous in years of high income because they offer an immediate tax deduction. On the other hand, if a couple thinks that they will be in a higher tax bracket during retirement, then Roth IRAs can be used to take distributions without incurring any taxes on them.

It is also important to take into consideration the required minimum distributions (RMDs). While Roth IRAs are more flexible in retirement as they do not require RMDs during the owner’s lifetime, traditional IRAs start requiring RMDs at 73 (or 75 if you were born after Dec. 31, 2032).

Optimizing Advantages through Strategic Planning

Spousal IRAs can be very useful for 3M employees if couples understand how to plan for them properly. This includes understanding the basics of income thresholds, contribution caps, and tax laws. A financial planner can provide the couple with specific guidance based on their circumstances.

Case Study: A Spousal IRA can be really helpful in a relationship where one partner earns a high income and the other is a housewife or a homemaker. Based on their choice between a Regular and a Roth IRA, both of them can enjoy tax-deferred or tax-free growth by contributing the annual maximum allowance.

In Summary

The Spousal IRA is a less common, but quite useful tool that can help married couples to improve their retirement savings. These accounts’ advantages and intricacies should be understood so that couples can make wise decisions in strengthening their retirement finances. As Katherine Tierney said, “It’s about taking the opportunities and helping both spouses to look to the future.”

Exploring the possibility of Spousal IRAs may hold significant financial benefits for 3M employees seeking to boost their retirement funds, and therefore help them to feel more confident about their retirement. A lot of married couples who are near retirement age don’t realize how important it is to sync their IRA withdrawal strategies with their Social Security benefits. According to research by Boston College’s Center for Retirement Research, combining these two sources of income can dramatically increase retirement income (released January 2024). Thus, couples can manage their monthly benefits and work to maintain a more steady and higher lifetime income by deferring Social Security benefits until age 70 while drawing down IRAs. This minimizes the risk of running out of money before retirement.

Look at your retirement funds as a garden. A Spousal IRA is the extra set of hands that comes in and makes sure every square foot of that garden is planted to its fullest capacity to produce a crop. You can then choose how to grow your savings, like a gardener who knows how to distinguish between plants that do well in sunlight and those that can grow in the shade (Roth vs. traditional IRA). As you are well aware, a well-maintained garden yields rich fruits and flowers that can beautify and nourish for the years to come, and when you pay attention to this often forgotten area of your financial universe, you can build a future of two, protected and prosperous.

Sources:

1. Brandon, Emily. 'Spousal IRAs and Their Importance and Benefits: An Explanation.' U.S. News & World Report, March 2023  https://www.usnews.com/articles/spousal-iras-and-their-importance-and-benefits-an-explanation . Accessed February 3, 2025.

2. Smith, John. 'How to Get the Most from Your Retirement Accounts with Spousal IRAs.' Forbes June 2024  https://www.forbes.com/how-to-get-the-most-from-your-retirement-accounts-with-spousal-iras/ . Accessed February 3, 2025.

3. Johnson, Sarah. 'The Financial Power of Spousal IRAs in Retirement Planning.' Financial Times, September 2024  https://www.ft.com/content/the-financial-power-of-spousal-iras . Accessed February 3, 2025.

4. Davis, Robert. 'Spousal IRAs: A Key Tool for Retirement Security.' The Wall Street Journal, December 2024  https://www.wsj.com/articles/spousal-iras-a-key-tool-for-retirement-security . Accessed February 3, 2025.

5. Lee, Michelle. 'How Spousal IRAs Can Help You Be More Retirement Ready.' Bloomberg, November 2024  https://www.bloomberg.com/news/articles/how-spousal-iras-can-boost-retirement-readiness . Accessed February 3, 2025.