There are approximately 12 million stay at home parents in the U.S. , 1.9 million of which are stay at home dads. Some of those stay at home parents raise children as their jobs. Other stay at home parents have telecommuting jobs that allow them to work from home. Either way, there are a few unique financial considerations to make when your own income is absent or irregular.
Retirement Savings Options
Rather than avoiding retirement planning altogether or risking a lack of diversified retirement portfolios, here are a few retirement savings options for stay at home parents who want to develop their own retirement nest eggs.
Spousal IRA Contributions
Do you and your spouse file a joint tax return each year? If so, then you could be eligible to make spousal IRA contributions of $5,500 per year, or $6,500 annually if you’re over 50 years old. Spousal IRA contributions are separate from the working spouse’s IRA contributions. This can double your retirement savings by maxing out both of your IRA funds each year. You cannot contribute more money than you make in income in a year, and you must file a joint tax return in order to maintain your eligibility.
Traditional IRA plans operate similarly to 401k plans offered by employers, taxed upon withdrawal during retirement, rather than upfront. Roth IRA plans are particularly beneficial because you can withdraw that money tax-free after age 59 ½, but contributions are not tax deductible. Don’t mistakenly assume that you need to have a job to qualify for an IRA, and the earlier you start saving for retirement, the more returns on investment you’ll see when you ultimately retire and enjoy your golden years with your spouse.
If you’re looking for places for your retirement savings options, you might want to check out investing with Betterment or Stash Invest. Both are great options for people looking for easy ways to get started investing.
You can use your income to supplement your spouse’s, therefore allowing them to contribute more to their 401k than they would otherwise be able to do. There are a few different types of retirement plans offered by employers, but the 401k is the most common. With a 401k account, you can put as much as $18,000 per year into professionally managed funds, and your employer might even offer 1-3% matches on your contributions, up to a certain limit. This is an excellent way to save for retirement, but it doesn’t offer as much autonomy for the stay at home spouse because the 401k is under the employee’s name, as opposed to both spouses’ names for IRAs. Ultimately, it’s up to you to decide which option is best for your relationship and shared retirement goals.
There’s nothing stopping you from investing in a Roth IRA and a 401k. But, unless you’re maxing out both accounts each year, you should rely on projected growth figures for the account(s) and determine your expected income tax rate at retirement age to determine which account you should prioritize.
Become self-employed and establish a SEP
One alternative to relying solely on one spouse to build a shared retirement savings is the stay at home parent starts working for themselves. Start a side hustle that offers enough time and space flexibility to allow them to continue being a stay at home parent. For instance, you could transform a personal hobby into a moneymaking venture with freelance gig sites like Fiverr, drive for Lyft while the kids are in school, offer babysitting/pet-sitting services for other busy parents, teach new skills to other people, or anything else you can imaginably turn into a profitable activity without sacrificing your ability to work when you want, where you want.
A side hustle is a great way to make extra money and it has an additional benefit. When you are self-employed, which freelancers are, you then have your own business which allows for a whole host of interesting tax benefits. One of which is the SEP. This is a retirement plan for self-employed individuals. You can contribute 25% of your income, up to $54,000 a year. This is in addition to your IRA.
Retirement planning is no longer as simple as waiting for Social Security to become available or relying on a steady, employer-provided pension. Higher costs of living, smaller cost of living increases for Social Security payments, the elimination of employer-provided pensions, and limited opportunities for stay at home individuals to actively save for retirement have all contributed to the problem. But, this is not an impossible obstacle to overcome even if you’re dealing with one spouse’s irregular income. By prioritizing a retirement planning you’ll be in a much better position when you reach your 60’s.
What about you? What retirement savings options have you found that work for your family?