If you’re recently married or planning to be married soon, chances are you’re older than your parents or grandparents were when they tied the knot. That means you (and probably your partner) have had more time to acquire various financial assets. While that may be good news for the long-term financial security of your marriage, it also makes the prospect of combining finances more complicated.
Still, marriage and finances go together like – well, like marriage and love. Like peanut butter and jelly. Like peanut butter and chocolate. Hang on. I have to get a snack.
Okay. Back. You’re married. You and your spouse have investments and savings and probably some debts and you need to figure out what to do with it all so you’re not tracking 16 different accounts (and trying to remember 16 passwords) as you plan your financial future.
Here, I humbly present your guide to marriage and finances: what to think about and strategies to consider as you combine your assets.
Marriage & finances: combining bank accounts
One big question for newly married couples is whether or not to combine bank accounts. Should you do it? Should you be freaked out by the 50 percent divorce rate? Maybe and yes.
The really good news when it comes to combining bank accounts is that you can have your cake and eat it too (am I making too many food analogies? Does that mean my snack was not big enough?). That is, you can set up a “yours, mine, ours” system where you each retain separate, private accounts and also open a joint account for things like rent or mortgage payments, utilities, and kids’ stuff (if and when you have kids).
Even better: opening a new account shouldn’t have any lasting effect on your credit score. Opening a new checking account may require a credit inquiry by the bank, but that usually only amounts to a five-point ding, which, in the long term, is recoverable.
The real question is how to set up a plan to jointly save for big goals like buying real estate, going on sick vacations, and, well, raising kids. Which brings me to the next part: investments.
How to combine investment accounts
I hope you enjoyed how easy-breezy the last section was because when it comes to combining investment accounts, things get a little more complicated. But don’t worry: that’s why I’m here.
And actually, before I get into the “how” of combining the investment part of your finances, let’s take a moment to explore the “why.”
Why combine investment accounts with your spouse?
There are several reasons you might want to combine this part of your finances. One of the most straightforward, though, is that merging, consolidating, or otherwise combining accounts makes it easier to keep track of your overall financial status and your progress toward meeting your financial goals.
But even if you’d prefer to keep your finances separate, it may simplify your life to at least bring them onto the same platform. Many investment platforms let you give viewing status to another user (like your spouse), even if you don’t want to grant that person access to your funds. Again, this makes for easier financial management in the long term.
Make sense? Okay. Back to the how.
How to combine your finances: investment edition
Once you’ve decided as a couple that you want to combine finances, the first thing to determine is your financial goals, for the short, medium, and long term. For example, do you want to…
- Buy a house?
- Go on a sick vacation every year?
- Have enough money to make a major anonymous donation to some weird organization that had a positive impact on your life?
- Not have to remember 16 passwords?
Whatever your financial goals, there are investment strategies that can get you there. And because your marriage means you’re part of a duo now, it’s a great time to combine the power of your funds to reach those goals together.
Once you’ve agreed on a few financial goals (and remember, you can come back to this later – you have your whole lives together!), it’s time to take stock of the kinds of investments you currently have. I encourage you to dig deep here and consider…
- 401(k) accounts from former employers
- Brokerage accounts or IRAs
- Series EE savings bonds you’ve acquired over the years
- Funds being handled by an RIA.
Now we’re really cooking: you’ve got some goals and you have a sense of what kind of money you’ve got percolating in different investment accounts. It’s time to think about combining some of these babies.
There are several considerations when combining investment accounts:
1. Potential tax consequences: In some cases, moving money from one investment account to another might have tax consequences. For example, if you liquidate a brokerage account with one firm to put the funds in a joint account with your spouse, you may have to pay a capital gains tax.
2. Fees: Many platforms charge you fees to open or close an account. M1 doesn’t, though, which is a major perk.
3. Account type limitations: If you and your spouse both have IRAs, you won’t be able to combine them because they’re individual retirement accounts and by definition connected to only one person. But you can consolidate by moving both IRAs to a single platform.
Obviously, all the specifics will depend on the details of your situation, but I figured it was best to lay that out right up front so nothing takes you by surprise.
How to combine finances by account type
For the purposes of this section, I’ll be as general as possible, but whenever I refer to specific requirements or procedures, I’ll be referring to how things are handled at M1. Just know that details will vary by platform.
The process of combining finances varies by the type of account you want to combine or roll over. Here are some of the most common:
- Rollover of 401(k) or 403(b) retirement accounts into an IRA: If you want your retirement account in the same place as your other investment accounts – or if you’ve got funds sitting in a retirement account from a former employer that you’re not sure what to do with – one option is to roll them over into an IRA, or individual retirement account. To do that, you need to first open an IRA account at M1, then contact the administrator of your account (for both a 403(b) and a 401(k)) and tell them you want to initiate a rollover. The specific steps for M1 are linked in the last sentence, but generally, you can expect to request that the admin send a check for your funds to the address of the platform you’re rolling them over to, whereupon they’ll be put into the IRA you created.
- Investment account transfers: To transfer an investment account from another platform to M1, the first step is to create a brokerage account with M1. Without that, there won’t be a place to put your investments. If you’re combining investments with your spouse, be sure to open a joint account so you both have access. If your money currently lives at a brokerage that doesn’t use ACATS (an automated transfer service), you’ll have to liquidate your existing account to transfer into your M1 account. If your current brokerage does use ACATS, you’ll be able to initiate an in-kind transfer. This will allow you to avoid liquidating your assets and transfer your investments directly, as M1 is also an ACAT firm. To do that, just send an email to the M1 transfers team (email@example.com) with a copy of the most recent monthly statement from the account you plan to transfer, along with any special instructions for the transfer. The M1 team will handle the rest. (Note: the process may take up to three weeks.)
- Partial account transfer: To transfer only part of an existing account to M1, you can follow the same process for transferring a full account. (Again, remember to create a joint account if you’re planning to combine funds with your spouse.) In the email, your “special instructions” would include guidelines for what you want to come to M1 and what you want to stay put.
- Addition of Series EE savings bonds to an M1 account: If you’ve got Series EE savings bonds that have matured, you can add them to an investment account in the same way you would cash – once you’ve cashed them in, of course. Here’s a breakdown of how M1’s cash deposits work.
- Transferring funds from an RIA account: If you or your spouse is working with a registered investment adviser (RIA) and you want to transfer the funds from that account to another account (maybe to avoid paying the RIA’s fees), you can do that as you would with any other brokerage account. While leaving the RIA may mean giving up a certain level of financial advisement, transferring to M1 can help you improve your own financial literacy and engagement.
One thing to keep in mind as you transfer accounts: certain types of investments may not be directly transferable from one platform to another. For example, the M1 platform doesn’t support mutual funds or OTC investments. If your current portfolio includes those types of assets, you’ll have the option of liquidating your current holdings and sending the cash to your M1 portfolio to balance as you see fit.
Marriage & finances: how to combine debt
One final piece of the combining finances pie: handling your debts. Today’s college graduates leave school with an average of $39,400 in debt – and that number has been rising steadily for years. College tuition is one of the notable standout costs that has increased, in the last few decades, much faster than inflation, meaning today’s college graduates have far more debt than their parents did.
And while debt can be a source of stress in any relationship, tackling it head on is a great way to minimize the strain it puts on your relationship. As with investing, your strategy for tackling debt should depend on your financial goals. Depending on where you stand and where you hope to be, you likely have three options:
- Snowball / avalanche payoff methods: If your primary goal is to be debt-free as quickly as possible, you may benefit from either the “snowball” or the “avalanche” method of debt repayment. While neither has any magic powers, both are ways to focus your repayments consciously to move you toward your goals. The “snowball” advocates paying off your smallest debt first, while paying just the minimum monthly payments on everything else. As you pay off accounts, your progress toward being debt-free “snowballs.” It can be a psychologically rewarding method of tackling debt as you eliminate one account after another. The “avalanche” method involves tackling the account with the highest interest rate first, paying the minimum monthly on everything else. While progress here can be slower, it often comes out costing less in the long term.
- Consolidation: Just as consolidating all your investment accounts to a single platform can simplify your life, so too can consolidating debts. But be careful: not all debt consolidation offers are a good deal, even if they do offer convenience. If consolidation appeals to you, be sure to do your research about any offer you consider before signing up. Investigate any early repayment penalties in particular, as those can eliminate any benefit consolidation may have had.
- Refinancing: Depending on your debt types and the rates you can get, refinancing may let you save money as you repay certain loans. If you opt to invest money through M1, you may have access to M1 Borrow, which offers the ability to borrow up to 35 percent of your portfolio, with competitive interest rates and a flexible repayment schedule.
When combining finances, the first step is talking
Combining finances after marriage is a big project. Don’t feel like you have to tackle everything as soon as you get back from your honeymoon. In fact, the first step toward building a strong financial future is having a conversation about your finances. Maybe read this article together and talk it through (with a snack, perhaps?).
The important thing to keep in mind, whatever you decide to do with your money, is that the more you talk about it, the easier it will be. Part of M1’s goal in publishing articles like this one is to support you as you figure out how to navigate the financial side of whatever life phase you find yourself in.
Oh, and congratulations! Did I forget to say that earlier? Sheesh. Anyway, I hope this piece is a helpful start to combining your finances. If you still have questions, feel free to reach out to the M1 team. They love talking about this stuff, and they’re always happy to help.
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Contributed by Brenna Lemieux.