Avoid This Common 401k Mistake Couples Make


401k, Marriage, Retirement


November 09, 2023

If you and your spouse both contribute to a retirement plan offered through work, a new report says you may be leaving money on the table.

 

The mistake is to not focus on 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. If that means the other spouse contributes less to his/her plan, that’s okay.

 

For example, if one spouse has a plan that offers a 100% match on every dollar she contributes (up to a limit) and the other spouse’s plan offers a 50% match, then the couple should make it a priority for the spouse with the 100% match to be sure she contributes enough to qualify for the maximum match.

 

Yet an academic study found that 1 in 4 married households fail to coordinate their 401(k) savings. And the researchers estimate that costs couples plenty: on average, households that fail to coordinate could be giving up $700 a year.  That works out to more than $30,000 over 20 years, assuming a 6% annualized return on the investment money.

 

I want to be clear: my hope is that each spouse always contributes enough to get the maximum matching contribution. But if that’s not yet possible in your household, be smart and make sure that as a couple you max out on the plan with the best match.

 

Worried about what would happen if you were to divorce? The law is that any money contributed to a retirement plan during a marriage is considered “marital property.” Unless there is a prenup, that means you both are entitled to a 50% share.

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