More mothers of young children are staying at home with the kids. While having one parent stay home full time can be a great option for some families, stay-at-home moms often miss out in one major area: retirement savings.
After steadily declining through the 1970s, 80s and 90s, there’s been a rise in the number of stay-at-home moms. The proportion of mothers who don’t work outside the home increased from 23 percent in 1999 to 29 percent in 2012, according to a Pew Research Center analysis of government data. This includes many different kinds of moms, including full-time students, disabled mothers, moms who want to work but can’t find work, mothers who have chosen to slide into a more traditional homemaker role and those who can’t afford the prohibitively high cost of child care.
[See: 10 Steps to Max Out Your IRA.]
A 2015 Transamerica Center for Retirement Studies survey showed that 75 percent of stay-at-home parents in the U.S. plan to rely on their spouse’s income in retirement. And only 44 percent of homemakers in the U.S. are actually saving for retirement. These are troubling trends for future retirees, especially for younger parents who may not be able to fall back on pensions as past generations have.
Luckily, saving for retirement isn’t impossible for the CEO of the home. In fact, there are several retirement savings options for stay-at-home parents:
Rollover IRA. First, if you have a retirement account from a prior employer, consider rolling it over to an IRA. You won’t have to worry about taxes and penalties, and you’ll likely gain investment options so that you can more wisely steward your retirement funds there. Plus, an IRA gives you additional withdrawal options, should you ever need them.
If you don’t yet have retirement savings, or you want to continue contributing to savings in your own name, you have two options: a spousal IRA or a self-employed retirement fund if you’re making money in a home-based business.
Spousal IRA. Typically, you can’t contribute to retirement accounts if you don’t have any earned income. However, if your spouse is bringing in an income, he or she can contribute to a spousal IRA, which is held in your name. Your spouse can contribute to either a traditional or Roth IRA, depending on which is best for your needs.
To qualify for a spousal IRA you need to file a joint tax return with your spouse. For 2015, your spouse can contribute up to $5,500, or up to $6,500 if you’re age 50 or older. However, these limits may change depending on your joint income.
Self-employed retirement fund. If you have or start a home-based business, you can also open an individual 401(k) or a SEP IRA. These options give you much larger maximum contribution options, though your contributions depend on your earnings from the business. Self-employed retirement options are complex, but they’re helpful if you’re running or launching a home-based business while you stay home.
[See: 10 Reasons to Save for Retirement in a Roth IRA.]
How to Jumpstart Your Savings
If you’re already living on one income, saving for retirement may seem like an impossible goal. But keep in mind that you may not be able to rely on your spouse’s retirement income to see you through. Death, divorce and other disasters can get in the way of the best-laid plans in even the best of marriages. So use these tips to build some retirement savings in your own name:
Prioritize retirement over education. As a stay-at-home parent, you do everything you can to give your kids the best start at life. That may be why you’re staying home in the first place. So prioritizing your retirement over education savings can be counterintuitive. But the bottom line is that your kids can borrow for their education, but you cannot borrow for retirement. If you’re currently funding education savings, put it on pause to fund your retirement first.
Pay yourself first. Living on one income, you might be great at maintaining the family budget. But if you’re not saving first, you’re doing yourself a disservice. The best way to boost savings is to automate your saving. Set up your accounts so that your retirement contributions come out of your spouse’s paychecks, and then you won’t wind up accidentally blowing that money on something else.
Squeeze it out of the budget. If you aren’t already on a budget, it’s time to start tracking your spending. Even if you think you can’t possibly trim any expenses, you probably can if you take a few months to see where your money is going. Prioritize anything you can squeeze out of the budget to go to your retirement savings.
Find a side gig. Having a side gig, whether that’s writing, sewing, crafting or cleaning houses, can be healthy for a stay-at-home mom’s psyche. Plus, it can bring in extra cash that you don’t have to feel guilty about devoting to your own retirement savings.
Keep your skills intact. If your eventual goal is to go back to work full-time when your youngest hits kindergarten, take time now to keep your skills up to date. This will make you more employable as soon as you are ready to start working. And the more you can earn during those early years of workforce re-entry, the more you can sock away in retirement savings to make up for lost time.
[Read: How Married Couples Can Max Out Their Retirement Accounts.]
Staying home with your kids certainly doesn’t have to be a career killer or a bad financial decision. For some families, it works out great. Just be sure that you plan for retirement, even while you’re spending your day raising the littles.
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Retirement Planning for Stay-at-Home Moms originally appeared on usnews.com
