Suze Orman: If You’re Married, You Could Be Making This Costly 401(k) Mistake
Written by
Gabrielle Olya
Edited by
Amber Barkley
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If you’re married, you and your spouse may both be making contributions to your respective 401(k) plans. While saving for retirement is always a good idea, when there are two separate 401(k) plans at play, it’s essential to be more strategic about how you go about doing so. If you don’t plan it out right, you’re likely leaving free money on the table.
In a recent blog post, Suze Orman shed some light on the costly 401(k) mistake some couples are making.
Be Mindful of the Company Match
Not all 401(k) plans are created equal, so it’s possible one spouse has access to a more robust plan. Ignoring this fact when making contributions is a costly error.
“The mistake is to not focus on the plan with the most generous matching contribution,” Orman said. “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 OK.”
Couples should aim to contribute more to the plan with the better matching contribution if they cannot afford to max out both plans at this time.
“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,” Orman said.
“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.”
Doing the Math
To illustrate how costly it can be to not be strategic about contributions, Orman cited a recent academic study.
“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,” she wrote. “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.”
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