Retirement Planning Strategies For Stay-At-Home Moms

OK, so you’re a stay at home mom and it’s your full-time job to raise the kids. (By the way, you’re not alone; five million women in the U.S. are stay-at-home moms.) That doesn’t mean you’re off the hook for retirement planning. You probably run the finances for the household and know where all the money goes in the present, but it’s also important to think about the future and retirement.

Making Retirement Planning a Priority

It’s important to make retirement planning a priority because retirement is expensive. It can be 30 years or more of living with a reduced stream of income. Plus, your partner—while bringing home a steady paycheck—may not be paying attention to the details. This is where you can step in and ensure that you and your family can enjoy the lifestyle you want in the future.

After all, staying home for the family’s benefit is a big deal—emotionally and financially. It’s quite possible that you’re putting your own career aspirations on hold while the kids are young. Plus, it means lost retirement contributions, including any employer matching contributions and possibly a lower Social Security benefit.

The good news is there are still steps you can take to participate in retirement planning:

Six Ways to Save for Retirement

1. Don’t forget about existing retirement accounts. If you contributed to a 401(k) or other employer-sponsored retirement plan before you stopped working outside of the home, make sure that you roll over those funds into a self-directed IRA and invest it in accordance with your time frame, risk tolerance and investment goals. Don’t leave the money sitting with your old employer or, worse, cash out the account (which will result in tax and penalties). While you won’t lose your money if you leave it in your previous employer’s plan, rolling the funds over into an IRA will give you more control over investments and make it easier to contribute in the future. You may also save money on administrative fees.

2. Don’t stop saving. While setting aside funds for the future may not seem like a priority—especially if you’re raising a family on one salary—it’s still important, since regular contributions will add up over time. If possible, try to find the room in your budget to save money in a taxable investment account, even if it’s only a few dollars a month.

3. Consider a spousal IRA. A spousal IRA is a tool that allows you to contribute money to a tax-advantaged retirement savings account, even if you don’t have earned income. As long as you and your spouse file a joint tax return, you can make a contribution of up to $5,500 (or $6,500 if 50 or older) toward a spousal IRA each year. Note that the deductibility of the nonworking spouse’s contribution for 2013 is phased out for couples with an adjusted gross income (AGI) between $178,000 and $188,000.

With spousal Roth IRAs, deductibility is not an issue. Contributions are made with after-tax dollars. The payoff is that all Roth account earnings—along with the contributions—can be withdrawn tax-free after age 59 1/2, provided that the account has been open at least five years. However, there are still AGI-based contribution limits. Specifically, eligibility to contribute to a Roth IRA for 2013 is phased out between AGI of $178,000 and $188,000 for couples filing jointly.

A spousal IRA can be an excellent tool to accumulate additional retirement savings, even if your spouse is participating in an employer-sponsored retirement plan.

4. Set up an individual (solo) 401(k) or SEP IRA. Many stay-at-home moms run home-based businesses or freelance on the side. If you have this kind of income, you may be eligible to set up an individual 401(k) or SEP IRA, which will allow you to save some of your earnings for retirement. How much you can contribute to these accounts depends on your income, but it may be as much as $50,000 per year. Saving for retirement by working for yourself can bring other benefits as well. Self-employment can help you keep your skills fresh and build contacts, which can make it easier to find a job if you do decide to re-enter the workforce at some point.

5. Maximize your spouse’s contributions. Is your spouse contributing as much as possible to an employer-sponsored retirement plan? If not, then it may make sense to increase deferrals, so that as a couple you are saving as much as possible for retirement. Currently, maximum contributions to a 401(k) plan in 2013 are $17,500 plus a $5,500 catch-up contribution for individuals 50 years and older.

6. Contribute to a health savings account. An HSA is a tax-advantaged account available to individuals with high-deductible health plans (HDHP) for use in paying medical expenses. The individuals are the owners of the account. For individuals who are employed, contributions can be made by both the employer and the employee. For those who are not employed, they can make contributions on their own behalf.

Unlike an IRA or 401(k), where earned income is a requirement, the funds deposited into an HSA by an employee can come from savings, dividends, unemployment compensation and even welfare. In addition, there are no income limits on who can contribute, unlike Roth IRAs. The maximum contribution for 2013 is $3,250 for an individual and $6,450 for a family. Additional catch-up contributions of $1,000 are allowed for individuals 55 years of age or older.

So how does an HSA pertain to retirement savings? Before and during retirement, HSA funds can be used tax-free to pay for qualifying health expenses. After age 65, HSA funds can be used for expenses other than health care without penalty (although ordinary income taxes will be due), so it’s another vehicle for tax-deferred savings. For those in higher tax brackets, HSAs may be especially beneficial as the tax savings are greater. Unused funds in an HSA remain in the account from year to year, so the owner has the option to either use the funds to pay current medical expenses or to pay those expenses out of pocket and allow the HSA to grow and serve as a source of income in retirement.

As a stay-at-home mom, caring for your family is your biggest priority. But don’t forget about taking care of yourself, and your retirement. Planning today can help you feel empowered now and enjoy the life you want in the future.

About the author

Cathy Curtis, CFP®

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