Retirement Planning for Stay-at-Home Parents
Millions of Americans are stay-at-home parents. While they may not get paid a regular salary, they perform vital work caring for children and managing the household. Unfortunately, since this work doesn’t come with a paycheck, it leaves those moms and dads in a tough spot when it comes to retirement. A nonworking spouse is going to have a tougher time preparing for retirement. Obviously, no income means saving for the future is difficult. Plus, a person who doesn’t work isn’t paying into the Social Security system. Even if you’re out of the workforce for just a few years while your kids are young, those nonworking years can cause you to fall behind in retirement savings. But staying home with the kids doesn’t have to mean jeopardizing your financial future, provided you have a plan. Don’t Neglect Your 401(k) Plan: Many parents work outside the home for a time before they decide to stay home. If you had a 401(k) plan before you left the workforce, don’t forget about those funds when you take time off. Depending on your plan’s requirements and the investment options available, you may be able to keep your money where it is, or you might want to roll over your savings to an IRA. In either case, you’ll want to keep an eye on your funds, making sure you have the proper asset allocation and that your investments are rebalanced as necessary. Whatever you do, you don’t want to cash out your savings unless it’s truly a financial emergency. Doing so will put you even further behind in your retirement savings. Set Up a Spousal IRA. Usually, you must have earned income to contribute to an IRA. But the IRS has created a special exception to help nonworking spouses prepare for retirement. It’s called a spousal IRA and works just like a traditional IRA. The husband or wife who works can contribute $6,000 a year to an IRA on behalf of their spouse ($7,000 if you’re over age 50). The money can go into either a traditional or Roth IRA, provided all the other requirements are met. Essentially, using a spousal IRA allows you and your spouse to double your IRA savings. However, you do need to file a joint tax return to be eligible for a spousal IRA. One other benefit of a spousal IRA is that the assets are held in the nonworking spouse’s name. That means that if the couple eventually divorces, the spouse who doesn’t work has retirement assets that are already their own. Set Up a SEP-IRA or Individual 401(k) Plan. You may be a stay-at-home mom or dad, but that doesn’t necessarily mean you’re not working in some fashion. Many people who don’t have careers outside the home earn money through consulting, freelance work, or home-based businesses. If this applies to you, you might want to consider setting up a SEP-IRA or an individual 401(k) plan to help you save for retirement. Assuming you earn enough money, you’ll be able to save more than you would in a spousal IRA. Don’t Stop Saving. Whatever you do, don’t forget about retirement saving just because you’re out of the workforce for a while. Set aside what you can for the future, even if it’s just a few dollars a month. That can be hard to do when your income is limited, but it’s still important. You can also encourage your spouse to maximize their own retirement savings so you are both on track for retirement.
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This newsletter was prepared by Integrated Concepts Group, Inc. The opinions expressed in this newsletter are for general information only and are not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. The views expressed are those of the author and may not necessarily reflect those held by PlanMember Securities Corporation. Material presented is believed to be from a reliable sources and PSEC makes no representation as to it accuracy or completeness.