Many families choose to have one spouse stay at home to take care of their children or aging parents. Dropping out of the workforce may remove?the option of contributing to?a company-sponsored 401(k)???but stay-at-home parents can?still? continue saving?money?for retirement and?their family?s?future.
Determine How Much You Can Contribute
With?Traditional and Roth IRAs, the IRS has a limit on the amount a nonworking spouse can contribute. For the 2012 tax year, a nonworking spouse can contribute $5,000 or $6,000 if they are 50 years of age or older. In order to qualify for a?Spousal IRA, the couple must also file a joint tax return, and the working spouse?s income must be greater than the contribution to the IRA.
Once you know the maximum amount you can contribute, determine how much you can currently afford to save. Monique Harps, with?Harps Financial Coaching, recommends that couples contribute a combined 12?15% of the working spouse?s income.
As an example, she points out that if the working spouse is paid $1,923.07 every two weeks ($50,000 per year), then the?couple?will have, jointly,?at least?$230.77 per payday to invest in retirement. The stay-at-home spouse?might then?invest $115.39 ? half that amount ??each payday for 21 years with an 8% return, yielding a savings of over $150,000?(including compounding interest).
Open a Spousal IRA
To open the account, consult a financial adviser or your local bank or credit union. Since there are tax implications for the type of IRA you open, work with a financial or tax professional to determine whether you should invest in a?Roth?IRA?or Traditional IRA.
When you?re employed, one of the easiest parts of contributing to your? company-sponsored retirement plan is that the money is taken directly out of your paycheck. This ensures that you save each month???it?s harder to miss money that you never see. To mirror?that discipline,?Harps recommends that stay-at-home parents set up recurring contributions using their online banking service.
Increase Contributions When Possible
If you are not making the maximum contribution through automatic payments, use any extra money that comes your way during the year to increase your retirement savings. Should your spouse receive a bonus or?you receive an inheritance, you can deposit the amount into your IRA as a one-time contribution. Consider also depositing any money that you earn through a part-time or seasonal job to the account. Each time your spouse gets a raise, be sure to increase the monthly contribution amounts. Your goal should be to work up to the maximum contribution amount.
Source: http://blog.smartasset.com/blog/personalfinance/2012/09/retirement-savings-for-stay-at-home-parents/
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