Married couples often decide together that one spouse should be the primary breadwinner while the other stays home to take care of family members. Although this often works out well for childrearing or eldercare responsibilities in the short term, it can present long-term retirement-planning risks for the stay-at-home spouse. For this reason, couples should familiarize themselves with a few spousal rules related to retirement plans.
Pension decisions for married couples
Typically, in a traditional pension plan, a worker is entitled to a “normal benefit,” which is payable for his or her lifetime and equal to a percent of final pay, assuming the plan participant works for a certain number of years and retires at a certain date. For example, a plan might stipulate that the participant will get 50% of his or her final pay for life, given a 30-year work history and retirement at age 65. If the participant works fewer years, the benefit will be less. If the participant retires earlier than age 65, the benefit will also be less, because it’s paid for a longer period of time.
To illustrate, let’s assume Joe is covered by a pension plan at work, and his plan contains the exact formula described above. Joe retires at age 65. He’s worked 30 years, and his final pay was $100,000. He’s entitled to a normal benefit of $50,000 per year, payable over his lifetime and ending at his death (a single life annuity).
But in order to protect nonworking spouses, federal law generally provides that if Joe is married, the plan can’t pay this benefit to Joe as a single life annuity unless his spouse, Mary, agrees. Instead, the benefit must be paid over Joe and Mary’s joint lives, with at least 50% of the benefit continuing to Mary for her remaining lifetime if she survives Joe. This is called a qualified joint and survivor annuity, or QJSA — it’s “qualified” because it meets the requirements of federal law.
However, a couple may choose to forego the QJSA feature as long as the spouse who is not the pension plan participant (in this case, Mary) signs off on the decision. Basically, the question comes down to this: should you elect a benefit that pays a higher amount while both spouses are alive and ends when the participant dies (a single life annuity), or a benefit that pays a smaller amount during the joint lives of both spouses but continues (in whole or in part) to the surviving spouse after the participant’s death (a QJSA)?
Now, here’s where it gets a little more complicated. Because the QJSA benefit is potentially paid for a longer period of time — over two lifetimes instead of one — the participant’s “normal benefit” will typically be reduced. Actuaries determine the exact amount of the reduction based on life expectancies, but let’s assume that Joe’s benefit, if paid as a QJSA with 50% continuing to Mary after Joe’s death, is reduced to $45,000. This amount will be paid until Joe dies. And if Mary survives Joe, then $22,500 per year is paid to her until she dies. But if Mary dies first, the pension ends at Joe’s death, and nothing further is paid.
The plan will usually offer the option to have more than 50% continue to the surviving spouse. For example, the couple may be able to elect a 75% or 100% QJSA. However, the larger the survivor annuity, the smaller the benefit the couple will receive during their joint lives. So, for example, if 100% continues after Joe’s death, then the payment to Joe might now be reduced to $40,000 (but Mary will continue to be paid $40,000 annually after Joe’s death if she survives him).
Rest assured that the QJSA option will be at least as valuable as any other optional form of benefit available to the surviving spouse — this is required by federal law. In some cases, it will be even more valuable than the other options, as employers often “subsidize” the QJSA. “Subsidizing” occurs when the plan doesn’t reduce the benefit payable during your joint lives (or reduces it less than actuarially allowed). For example, a plan might provide that Joe’s $50,000 normal benefit won’t be reduced at all if he and Mary elect the 50% QJSA option, and that she’ll receive the full $25,000 following Joe’s death. It’s important to know whether the plan subsidizes the QJSA so that you can make an informed decision about which option to select. Other factors to consider are the health of both spouses, who’s likely to live longer, and how much other income the surviving spouse expects to receive.
You’ll receive an explanation of the QJSA from the plan prior to the participant’s retirement, which should include a discussion of the relative values of each available payment option. Carefully read all materials — one spouse should not waive his or her rights without fully understanding the consequences. And don’t be afraid to seek qualified professional advice, as this could be one of the most important retirement decisions you’ll make as a couple.
A stay-at-home spouse can have an IRA
While it’s obviously important for both spouses to try to contribute towards their own retirement, if you’re a nonworking spouse, your options are limited. But there is one tool you should know about. The “spousal IRA” rules let a nonworking spouse fund an individual retirement account even with no earnings. With regular contributions over time, a spousal IRA could become an important source of retirement income.
How does it work? Normally, to contribute to an IRA, you must have compensation at least equal to your contribution. But if you’re married, file a joint federal income tax return, and earn less than your spouse (or nothing at all), the amount you can contribute to your own IRA isn’t based on your individual income; it’s based instead on the combined compensation of you and your spouse.
For example, Mary (age 45) and Joe (age 50) are married and file a joint federal income tax return for 2021. Mary earned $100,000 in 2021 and Joe, at home taking care of ill parents, earned nothing for the year. Mary contributes $6,000 to her IRA for 2021. Even though Joe has no compensation, he can contribute up to $7,000 to an IRA for 2021 (that includes a $1,000 “catch-up” contribution), because Mary and Joe’s combined compensation is at least equal to their total contributions ($13,000).
The spousal IRA rules only determine how much you can contribute to your IRA; it doesn’t matter where the money you use to fund your IRA actually comes from — you’re not required to track the source of your contributions. And one spouse does not need the other’s consent to establish or fund a spousal IRA.
The spousal IRA rules don’t change any of the other rules that generally apply to IRAs. You can contribute to a traditional IRA, a Roth IRA, or both, provided you don’t exceed the annual contribution limits. And your ability to make annual contributions to a Roth IRA may be limited depending on the amount of your combined income.
Have a great weekend!
Source: Efficient Advisors
Golf Tip of the Week
Fix Your Grip by the Weekend
Fundamentals are called fundamentals because if you get them wrong, you’ll have a hard time hitting good shots.
The grip might be the most basic fundamental–it’s the only link between you and the club–but it’s the one thing many players get totally wrong.
There are plenty of elaborate descriptions about how to put your hands on the club, but top New York teacher Michael Jacobs uses a simple comparison familiar to almost everybody to get his students doing it right.
“Stick out your left hand and hold the club like you would a heavy suitcase,” says Jacobs. “If you picked up a suitcase, you wouldn’t take the handle diagonally across your palm. You’d let it rest in the creases of your fingers where they attach to your palm.”
Next, add your right hand to the grip slightly palm up, running the handle along the top crease in your palm and curling your fingers around the underside. You can rest the little finger of your right hand either on the left forefinger or in the channel between the forefinger and middle finger, or interlock the little finger and forefinger together, Jacobs says. Using a ten-finger grip, with all ten fingers on the handle, isn’t as common, but that works just fine as well.
“Not every ‘classic’ golf tip you hear is necessarily still relevant now, but this one is still true–there’s no reason not to have a great grip,” says Jacobs, who is based at Rock Hill Country Club in Long Island. “If you start with a bad one, you’re going to have to make compensations in your swing from the beginning. You want to be able to transmit the force you create with your body as efficiently as possible to the clubhead, and a good grip is an important part of that.”
Tip adapted from golfworldtoday.comi
Recipe of the Week
Easy Stuffed Stromboli
- 1 pound prepared pizza dough (homemade or store-bought)
- All-purpose flour, for sprinkling
- 16 thin-cut slices Genoa salami (1/3 pound)
- 8 thick-cut slices capicola ham (1/3 pound)
- 16 slices provolone (1/4 pound)
- 1 1/2 cups shredded mozzarella
- 1 cup peppadews, or roasted red peppers, drained
- 1 tablespoon drained capers
- 1 large egg, lightly beaten
- 2 tablespoons grated Parmesan, for sprinkling
- Heat oven to 400°. Place an oven rack in the lower third of the oven.
- Lay a 16-inch sheet pf parchment paper on the counter and dust it with flour. Roll the dough on the floured parchment paper to a 14-by-11-inch rectangle.
- Layer the salami on the dough to within ½-inch of the edges and overlap the slices so that no dough shows beneath the salami. Add provolone, followed by mozzarella, and them the peppadews. Finally, sprinkle with capers.
- Brush the edges of the dough with egg. Using the parchment to help you, lift up one long end and start rolling. Continue rolling until the seam on the log is on the bottom. Pinch the ends so that they don’t open and tuck the dough under the roll.
- Using the parchment paper as a sling, transfer the log on the paper to the baking sheet. Brush all over with egg and sprinkle with parmesan. Use a paring knife to cut diamond slits at 1-inch intervals all along the top.
- Bake the Stromboli for 15 minutes. Turn the oven down to 375° and continue baking for 25 minutes, or until the log is golden and the cheese is oozing at the slits.
- Cool on the pan for about 10 minutes. Cut into slices along the slits. Serve immediately while hot. Stromboli is also delicious at room temperature.
Recipe adapted from realsimple.comii
Health Tip of the Week
6 Practical Ways to Become More Self-Aware
How well do you know yourself? If you’re like most people, you’re probably familiar with the basics: You like this, hate that, and have a knack for a certain skill. But what about your behaviors and thoughts—and how they affect your life? You know, the deep stuff.
That’s where self-awareness comes in. “Self-awareness is about looking at who you are in a way that acknowledges how you impact others [and] how they impact you,” explains therapist Marcelle J. Craig, LMFT. It also involves understanding your emotions and internal narrative, allowing you to lead a fulfilling life. “It’s the first step to changing and growing,” says Craig.
On that note, the practice of self-awareness is just that: a practice. Learning how to be self-aware is a life-long journey, and it’s never too late to start. Here are some therapist-approved strategies for understanding yourself and who you truly are.
- Seek out new experiences.
- Ask people for feedback about yourself.
- Identify what triggers your negative emotions.
- Question your opinions and beliefs
- Get clear on your core values.
- Write in a journal.
Tip adapted from realsimple.comiii
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Securities through Triad Advisors, LLC, Member FINRA/SIPC. Advisory services through Ballentine Capital Advisors, Inc. Triad Advisors and Ballentine Capital Advisors are not affiliated entities.