Few people would say saving for retirement is easy, but it's especially difficult for couples with a single income. In addition to the challenge of finding money for retirement, they can also run into the trouble of where to keep it, as retirement accounts only allow you to contribute up to a certain amount each year.
It can feel as though the lion's share of the responsibility falls on the breadwinner, but there are a few things a stay-at-home spouse can do to help a couple increase their retirement savings more quickly.
1. Help reduce the household's expenses
Stay-at-home spouses may not provide direct income for the household, but they can reduce the household's expenses by tackling work that needs to be done at home. For example, cooking at home is more affordable than dining out, so by preparing home-cooked meals, the stay-at-home spouse is saving the couple money on food.
Childcare is another enormous expense for families, as is caregiving for households that contain elderly or disabled relatives. While it's possible to hire others to take on this work, doing so comes at a high cost. A recent Care.com survey found that more than half of families spent over $10,000 on child care in 2020, and even more plan to do so in 2021.
All of these expenses require the household to divert money away from retirement savings. If the stay-at-home spouse takes on some of these responsibilities, the worker can invest the savings in their retirement account.
2. Open a spousal IRA
Single adults may only contribute to a retirement account if they've earned income during the year, and their contributions may not exceed their annual earned income. But there's an exception for married couples.
A stay-at-home spouse can open an IRA in their name and the working spouse may contribute to it as long as they've earned enough during the year to cover these contributions and contributions to their own retirement account. When this happens, the account in the stay-at-home spouse's name is considered a spousal IRA.
All IRAs have annual contribution limits of $6,000 in 2021, or $7,000 if you're 50 or older. So opening a spousal IRA could potentially allow single-income households to save up to $7,000 more for retirement than they would have been able to previously. This is a huge boon to families that don't have access to a 401(k) or other retirement account with higher contribution limits.
One thing worth noting is that should a couple divorce down the line, all funds in the spousal IRA belong to the spouse whose name is on the account, not the one who actually contributed the funds. Hopefully that won't be an issue for you, but it is something to keep in mind when opening one of these accounts.
3. Start a side hustle
You don't need to be traditionally employed to contribute to a retirement account. As long as you're earning income during the year, you can set aside money in a retirement account. You may contribute to your own IRA or, if you have your own business or side hustle, you can use a self-employed retirement account.
Self-employed retirement accounts have much higher contribution limits than traditional retirement accounts like 401(k)s and IRAs, which can help a couple save more for retirement. You also have more freedom to choose what you invest in. This can help you minimize your fees and grow your savings more quickly than you could with some workplace retirement plans.
You do owe taxes on side hustle income, just like you would on income from a traditional job. But if you stash all your side hustle funds in a tax-deferred retirement account, you can avoid paying those taxes until you withdraw the funds later. But this isn't always the best option.
If you believe you're in the same or a lower tax bracket now than you'll be in once you retire, you're probably better off saving in a Roth account. But that means you have to pay taxes upfront in order to enjoy the tax-free withdrawals later. Make sure you're setting aside money for taxes in a separate savings account so you don't accidentally spend it. Then, put the rest in your retirement account.
Working together is the key to success
However you choose to save for retirement, make sure you and your spouse are on the same page. Sit down together at least once per year, or whenever your financial circumstances change, and discuss your retirement saving strategy. Talk about any changing goals for retirement and how that might affect how much you need to save going forward.
These annual check-ins will help you both understand what you need to do and increase your confidence that you're working toward the same goal.
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