When you choose to step back from the workforce by staying home either full-time or by taking a part-time job, it can be a lot harder to save for retirement. Most employers don't offer retirement benefits to part-time employees. Without an employer, it's even harder. It takes more planning to make sure that you can save enough to make your retirement comfortable.
For spouses with what the Internal Revenue Service (IRS) refers to as "unequal compensation," one of the best tools for saving for retirement is a spousal individual retirement account (IRA). Just like other individual retirement accounts, a spousal IRA offers tax advantages. The spousal IRA allows an individual to save up to $5,000 every year, even if you have no income in your own name. If you are over 50, you can save up to $6,000. However, know that there are a few more hoops to jump through for a spousal IRA than for other retirement accounts. You and your spouse need to file your taxes jointly, and contributions to other retirement accounts in your name can limit what you can save.
Karen Carlson, the director of education at InCharge Debt Solutions notes that the spousal IRA can be a great way to catch up: "Significant numbers of middle-aged and boomer generation Americans are just now starting to save for retirement. Exhausting the spousal IRA is a great way for couples to kick retirement savings into high gear and 'catch up' to where they should be at this point in the game."
There are other options for saving for your retirement, including contributing to other types of retirement accounts and saving on your own. It makes sense to sit down with a financial planner to explore the best options for you and your significant other, especially since your choice of saving strategies can have major impacts on your taxes.
You do have to work with your spouse to come up with a plan that will work for you, for the long-term. Because there aren't as many automatic triggers that can help you save as if you're the primary breadwinner. There are no retirement account contributions being deducted from the paycheck of a stay-at-home parent. You have to make sure that you're meeting your goals.
Carlson describes building retirement savings as a 'team sport.' "Saving for retirement is not about how much you or your spouse makes, it's about how much you keep. Create a plan together and work the plan. Consistency is everything when it comes to building retirement savings habits. These are not one-time decisions - these are daily decisions that build security for you and your family, over decades. If your goal is to max out the spousal IRA each year, don't think about how you are going to 'find' $5,000 once a year. Allocate $416 each month from your monthly budget to your IRA."
The Bottom Line
It's tempting to think that relying on your spouse's retirement account is enough, provided you put enough money into it. But it is important to make sure that both you and your spouse have separate retirement plans in place. No one wants to think that it can happen to them, but divorces does happen, and they can change your retirement expectation overnight. In most cases, retirement accounts are considered community property in a divorce and should be split, but there are situations in which one spouse may ask the other to waive any claim to retirement benefits. Retirement planning is based on hoping for the best and planning for the worst. Keep that in mind as you and your spouse talk about how to save for both of your futures.
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