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    Benefits of Having a Spouse for Individual Retirement Accounts (IRAs)

    If you have a spouse and are married, your federal tax rate could actually be lower than that of a bachelor working full time. This is because the US Tax System favours married couples more than unmarried individuals when it comes to taxation and retirement 401k plans. This article will summarize some of the extra benefits available to married couples when it comes to 401k retirement plans.

    1) Use Your Spouse's Taxable Income to Fund your Individual Retirement Account (IRA)

    If you read the eligibility requirements and rules for a Roth IRA, you will see that one of the requirements for contributing towards a Roth IRA account is that you must have taxable employment income. This means you cannot inherit your income or receive certain benefits and then contribute towards a Roth IRA. This income must be earned income from a business or employment. This rule is waived when it comes to married couples. This is because if your spouse has taxable employment income while you don't, your spouse can make Roth IRA contributions on your behalf and into your account.

    2) Inherit Your Spouse's Retirement Benefits

    A 401k Retirement Account Owner can usually designate any beneficiary of his 401k retirement savings upon his/her death. However for married couples, the spouse writing the will must designate the beneficiary of his retirement savings account with the consent of his/her spouse. Furthermore, the spouse must consent to the will for it to be approved. This ensures that your spouse does not designate another beneficiary of his retirement savings upon his death, without your approval or knowledge. This type of spousal protection is offered in the following plans:

    • Qualified Plans: In order to participate in Qualified Retirement Plans, your spouse must designate you as the retirement savings beneficiary. If your spouse choose's another beneficiary for his/her retirement savings, it must be done with your consent and approval (infront of a notary public or plan administrator).

    Inheritance of Retirement Assets

    If you inherit retirement savings assets, your options for distributing the assets are:

    1) If the Retirement Account Owner dies before the Required Beginning Date (RBD) (The date before which the retirement account owner must start receiving the Minimum Required 401k Distributions (MRDs):

    • Distribute your assets over your life expectancy, and if there are multiple beneficiaries, distribute the assets over the life expectancy of the oldest beneficiary.
    • Distribute the assets over a useful life of 5 years.
    • Distribute the assets entirely in a lump sum payment.

    2) If the Retirement Account Owner dies On or After the Required Beginning Date (RBD):

    • Distribute the assets entirely in a lump sum payment.
    • Distribute the Assets over your life expectancy or of the beneficiary.

    Distributions from Retirement Savings Account Without Spousal Consent

    It is very possible that one spouse cheats on another and withdraws money from the joint retirement savings account without the consent of the other spouse. The chances of this happening are very slim if your retirement savings account is a Defined-Benefit Pension Plan, Target-Benefit plan or Money Purchase Pension Plan. This is because distributions from these plans are made in a Qualified Joint and Survivor Annuity (QJSA) format. Under the Qualified Joint and Survivor Annuity (QJSA) format, the retirement participant will receive life annuity payments while the Surviving Spouse will receive survivor annuity payments, over the life expectancy.

     

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