Is It Better If Both New Parents Work Or Just One?

When starting families, many couples wrestle with whether one parent should leave the workforce to become a stay-at-home parent. With one parent at home childcare costs and other work-related expenses are reduced, but there are other financial implications to consider.

What is your budget?

When a parent stays home, a budget becomes more important than ever. In addition to showing you what is needed for a family to live on a single income, a budget lets you see where you can save and spend. It also helps both parents understand where the money is going. When planning a budget for a reduced income, it’s important to be realistic. Cut costs where you can without sacrificing essential expenses and without risking your goals for your future.

Consider your healthcare plan

Whatever the changes in national healthcare bring, it’s essential that you have a plan that covers your entire family. If one parent works outside of the home, you may be able to obtain healthcare coverage for the whole family through the employed parent’s plan. If not, you need to find outside personal coverage. Either way, it’s an expense you need to consider and plan for as you grow your family and consider leaving behind employer-sponsored benefits. Healthcare costs are rising at a rapid pace, so make sure your healthcare budget is realistic and takes into account premiums as well as other out-of-pocket expenses. Remember that children visit the doctor a lot, particularly in the first few years.

Lowering your social security

When one spouse stops working, they also stop paying into Social Security—which impacts the amount of Social Security benefits received in retirement. To compensate for this, the stay-at-home parent should increase his or her contributions to other retirement savings plans.

Impact on retirement savings

Saving for retirement may seem daunting once you have children, especially if you’re living on a reduced income. A growing family makes it even more important that you make the most of your income to prepare for your future. Contributing to the working parent’s IRA or 401(k) provides a good source of retirement savings, but remember that you need to save enough for two people, even while potentially living on one person’s income.

In some cases, a Spousal IRA can help. With a Spousal IRA, the stay-at-home parent can contribute up to $5,000 a year to his or her own IRA. To qualify, the other spouse must be working, you have to file a joint tax return, and contributions are subject to IRS income limits.

Without the automatic withdrawals that make contributing to an employer-sponsored retirement plan easy, it’s essential that the stay-at-home parent diligently contribute to retirement accounts. A solid plan and automatic bank transfers can help.

Benefits of flex work

Working from home can allow the stay-at-home parent to earn additional income, often with the flexibility and part-time hours that make it manageable even with children. It can also have the additional tax benefit of opening up home office deductions on your income taxes.  The tax laws surrounding home office deductions are complicated and the risks and rewards can be high—so it’s essential that you consult a tax specialist.

Everyone needs a personalized plan

Staying home with kids can bring additional financial stress, but expert advice and a solid plan can help you maximize your current financial situation as you reap the rewards of your personal choice. A financial advisor can help you manage all the big changes in your life—and the financial implications of a growing family and a reduced income can certainly be big.

About the author

Garth Scrivner, CPA/PFS, CFP®

Garth has almost 10 years of experience in financial services in a variety of roles. Prior to joining StanCorp Investment Advisers, he was a principal in his own advisory firm, serving individuals and families in the Albuquerque area with comprehensive financial planning and investment management. He is a Certified Financial Planner® professional, and has his bachelor’s degree in accounting from New Mexico State University.

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