What Type of Investment Account is Best for Couples?

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May 13

Most married couples assume that all of their investment and retirement assets are shared equally. They share a home and family, and view their wealth with the same mindset. In their mind, there is no "his" or "hers"—there is only "ours." They often assume that their financial institutions will automatically respect their shared outlook on life.

However, the legal and financial systems do not share this assumption. To a bank, a brokerage firm, or the IRS, the default is often not "ours" but rather "his" or “hers.” Without intentional planning, the law may treat your assets in ways that contradict your shared desires or practical needs, creating unexpected hurdles during a medical emergency or upon the death of a spouse. These challenges can even persist beyond the grave, creating problems for your heirs to sort out.

To avoid this, it’s important for couples to ensure that their account structures align with their shared desires for their assets. This requires setting up their retirement accounts properly, and choosing the right type of taxable brokerage account.

Setting Up Retirement Accounts Properly

When it comes to tax-advantaged retirement accounts like 401(k)s, 403(b)s, and IRAs, there is no such thing as a joint account. The "I" in IRA stands for Individual. Even if you consider your spouse's 401(k) to be half yours, the financial institution only recognizes one owner.

While you cannot change the "individual" nature of retirement accounts, you can designate your spouse as the primary beneficiary of them. By doing so, you ensure the assets bypass probate and transfer directly to them upon your death. While spouses are sometimes designated as the default beneficiary on retirement accounts, it’s important to check and confirm this.

You may also want to establish a Durable Power of Attorney (POA), which grants your spouse the authority to manage your accounts if you become incapacitated. Note, however, that there is no guarantee that your retirement plan providers will honor your spouse’s POA. Some providers won't accept a POA unless it is on their proprietary form, and even if they do, there may be other issues or delays while their attorneys review it. If you do set up a POA, make sure that it grants authority over that specific retirement account, or at least over retirement accounts in general.

While retirement accounts will always be individually owned, the proper documentation can help ensure they are treated as part of your unified family plan.

Choosing the Right Type of Taxable Brokerage Account

Unlike retirement accounts, which are always owned by individuals, married couples can choose whether to hold their taxable assets individually or jointly. The most common types of taxable accounts for couples are:

Individual brokerage account - Couples may own one of these accounts (held solely by one spouse) or two of these accounts (held separately by each spouse)
Joint Tenants with Rights of Survivorship (JTWROS) brokerage account, owned jointly by both spouses.
Community Property (CP) brokerage account, owned jointly by both spouses.
Community Property with Rights of Survivorship (CPWROS) brokerage account, owned jointly by both spouses.

Each of these types of accounts bestow some combination of the following features:

Available Everywhere: The account can be opened in any state regardless of where the couple resides, and is recognized nationwide, ensuring that legal protections and tax benefits remain intact even if the couple moves.
Shared Access & Control: Both partners have equal, independent access to the account, so that if one partner becomes incapacitated, the other can continue managing the account without a POA.
Protection from Creditors: If one partner is sued or faces a judgment, the account may offer some shielding from creditors.
Automatic Right of Survivorship: When the first spouse passes away, the other spouse immediately gains sole ownership of the account, instead of having to pass through probate.
Step-Up in Basis: When the first spouse passes away, the entire account’s cost basis is reset to current market value, effectively wiping out all unrealized capital gains in the account, potentially saving hundreds of thousands in taxes.
Secondary Beneficiary Designation: The couple can specify who they want to inherit the account once both of them pass away (though surviving spouses always retain the ability to change this designation after the first spouse passes away).

Unfortunately, none of the accounts offer all of these features; each account comes with its own set of benefits and drawbacks. This reality forces couples to make tradeoffs when choosing which account is right for their situation. The table below details how each of the features above maps to the accounts listed.

First, Some Caveats

The table below provides a very high level comparison of account types and features, and comes with some significant caveats:

The information provided is for educational purposes only and does not constitute legal or tax advice. Choosing how to title your accounts has significant legal, liability, and tax implications. Palisade cannot provide legal or tax advice, nor select account types for you.
The table is primarily focused on married couples. Because the IRS views unmarried couples and domestic partners as separate taxpayers, holding a joint investment account can create federal tax and estate-planning complexities that are beyond the scope of this article.
While many couples have no concerns with a joint account, the commingling of assets can be problematic for couples in certain situations (blended families, children from prior marriages, significant premarital wealth, high-risk professions, complicated tax or estate situations, etc). For these couples, joint accounts should be approached with an additional level of caution.
The table assumes the accounts held directly by the spouses, not in trust. Trusts are powerful estate planning tools that allow couples to control how their assets are managed through various circumstances (incapacity, death, lawsuits, taxes, etc). However, because they are inherently more complex than direct account ownership, they are beyond the scope of this article.

Account Feature Comparison Table

Feature	One Individual Account (held solely by one spouse)	Two Individual Accounts (held separately by each spouse)	Joint Tenants with Rights of Survivorship (JTWROS)	Community Property (CP)	Community Property with Rights of Survivorship (CPWROS)
Account Availability & Access
Available Everywhere?	✅ Yes. Recognized in all 50 states.	✅ Yes. Recognized in all 50 states.	✅ Essentially. Recognized in almost every state.	❌ No. Limited to 9 states (AZ, CA, ID, LA, NV, NM, TX, WA, WI).	❌ No. Limited to 6 states (AZ, CA, ID, NV, TX, WI).
During the lifetime of the couple (before either has passed away)
Shared Access & Control?	❌ No. Non-owner needs a valid POA to trade or withdraw funds.	❌ No. Each person needs a valid POA to trade or withdraw funds in their spouse’s account.	✅ Yes. Both spouses have independent access to trade or withdraw funds.	✅ Yes. Both spouses have independent access to trade or withdraw funds.	✅ Yes. Both spouses have independent access to trade or withdraw funds.
Protection from Creditors?	✅ Stronger. Generally, assets are protected from spouse’s creditors (but exposed to owner’s creditors).	✅ Stronger. Generally, assets are protected fromspouse’s creditors (but exposed to owner’s creditors).	⚠️ Half. Generally, only half of the assets are exposed to the creditors of one spouse.	❌ Limited. Generally, assets are exposed to the creditors of either spouse.	❌ Limited. Generally, assets are exposed to the creditors of either spouse.
After the first partner passes away
Automatic Right of Survivorship?	⚠️ Not inherently, but partner can be named as TOD beneficiary.	⚠️ Not inherently, but partners can be named as TOD beneficiaries.	✅ Yes. Ownership is inherent in the title.	❌ No, but surviving spouse may inherit decedent’s share via probate.	✅ Yes. Ownership is inherent in the title.
Step-Up in Basis?	❌ Depends. Step-up occurs only if the decedent is the account owner.	❌ Partial. TOD beneficiary gets step-up only on the assets owned by the deceased spouse.	⚠️ Half. Survivor gets a 50% step-up on the assets in the account.	✅ Full. Inheritor gets a 100% step-up on the assets in the account.	✅ Full. Survivor gets a 100% step-up on the assets in the account.
After the second partner passes away
Secondary Beneficiary Designation?	⚠️ Limited. Secondary beneficiaries may inherit if primary beneficiary dies before the owner.	⚠️ Limited. Secondary beneficiaries may inherit if primary beneficiary dies before the owner.	✅ Yes, by designating heirs as TOD beneficiaries.	❌ No. The deceased's half goes to their estate, making a unified TOD impossible.	✅ Yes, by designating heirs as TOD beneficiaries.

Less Common Ways for Couples to Hold Taxable Assets

While the account types above cover the needs of most families, a few other legal structures exist. These are generally less common for the reasons described below, and are beyond the scope of this article.

Tenants in Common (TIC): Allows partners to own specific, separate percentages of a shared account (e.g., a 70/30 split). While useful in certain scenarios, it can be overly complex for the average couple who wants to share their assets equally.
Tenancy by the Entirety (TBE): Broadly speaking, TBE provides right of survivorship with the creditor protection of individual accounts. The main drawback is availability and firm support, as it is only recognized in certain states, and many brokerages don’t offer or provide limited support for them.

Phil Sharp