Are you wondering how you can plan for retirement as a stay-at-home mom? If so, then I’m glad you’re here.
As someone who has been a stay-at-home mom for some time now, I also had the same question. To get some answers, I consulted some financial experts who deal with retirement planning for families.
I asked them some questions to better understand how stay-at-home moms can save for retirement. I’ve written their response in detail in this article.
Read on to find out what they suggest.
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Here’s a helpful video that explains some of the contents mentioned in this blog post.
How can a stay-at-home mom save for retirement?
A stay-at-home mom can save for retirement using a variety of ways. These include a spousal IRA, a rollover IRA, mutual funds, stock brokerage accounts, a solo 401K, and a standard savings account.
Any method that enables a housewife to put aside money for when she retires can be considered saving for retirement. One important thing to remember is that the account you open must be in YOUR NAME for it to be considered YOUR retirement account.
Let’s break down each of the methods we listed above for saving for retirement.
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What is an IRA?
According to Herman Thompson, a certified financial planner (CFP), “an IRA is an Individual Retirement Account. This is an account that allows a taxpayer to save for retirement and delay the taxation of the growth until the funds are withdrawn”.
This means that if you open an IRA and put money in it, that money will not be taxed. It’ll continue to earn interest if you leave it there until you retire. Another benefit of the IRA is that you can get a tax deduction in the year you make contributions into the account.
Now that we understand what an IRA is, let’s look at how an IRA can help a housewife save for retirement.
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Spousal IRA
A spousal IRA is a special type of IRA that a stay-at-home mom (or any married person) can open in her name. In order to prove that she has a consistent way of contributing to it, she would have to use her spouse’s income to qualify.
Remember that you must be married and file a joint tax return to qualify to open a spousal IRA.
Herman Thompson, CFP says that “a stay-at-home mom can contribute up to $6000 dollars a year into her spousal IRA. If she’s over 50, she would be allowed to contribute about $7000 dollars”.
A spousal IRA is an excellent way to save for retirement. Your spouse could put money into it on your behalf, or you could contribute to it yourself if you work as a freelancer or do some side gig.
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Other ways to plan for retirement as a stay-at-home mom
Rollover IRA
If you’ve previously worked for a company that had a retirement account opened for you such as a 401K or 403B, you can roll over the money to an IRA when you leave the company.
This is known as a rollover IRA.
I used this method to save the $700 I earned in a 403b after I left a company I used to work for when I was in college. That money is still gaining interest today.
Lyle Solomon, an attorney and financial expert I spoke to said when you open a rollover IRA, “You have more discretion over how that money is invested when rolling it over because there are no taxes or penalties”.
He noted that you should refrain from cashing out your account balance, even if it is only a tiny amount.
According to Mr. Solomon “If you cash out your balance because you’re no longer contributing to the account, you will still have to pay fees and penalties and forfeit the chance to have those funds accrue interest over time”.
There are some rules involved when doing a rollover. To learn more, check out this page on the IRS website.
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Consider working part-time
If you work for an employer, then they would withhold a portion of your paycheck to pay social security taxes. Paying social security taxes is a good thing.
The amount of social security taxes you pay is how the government calculates your social security benefits when you’re old enough to retire. So working part-time is a great way for a stay-at-home mom to plan for retirement.
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Take on some freelance work or Gig work
When a stay-at-home mom works as a freelancer or gig worker, the government considers her self-employed. As someone who is self-employed, you need to pay your own social security taxes when you file your self-employment tax return.
Note that you only need to file a self-employment tax return if you made over $400 dollars in a year according to the IRS.
As I’ve mentioned previously, your future social security benefits are determined by the amount of social security taxes you paid in your working years.
So the more social security taxes you pay, the better your benefits will be when you retire. So freelancing is a great way for a stay-at-home mom to save for retirement.
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Understand your social security benefits
According to the IRS, you have to work for 10 years (the equivalent of 40 social security work credits) to qualify to receive social security benefits.
Your benefit is calculated based on your highest 35 years of earning. So the amount you earn will be low if you only worked for 10 years. This means that the more years you work and pay SS taxes, the more your benefits will be.
You can start collecting social security benefits at the age of 62. To find out how many social security credits you currently have, create an account with the social security administration here.
Invest in a mutual fund
Another way for a housewife to save for retirement is to invest in a mutual fund.
A mutual fund is a type of investment that lets you pool your money with other investors to buy stocks, bonds, and other investments.
The money in a mutual fund is controlled by a money manager whose job is to invest it in stocks, bonds, etc, to help it gain profit. The profit that the money earns is then distributed “mutually” between all the people who invested.
According to CapitalOne, some of the benefits of investing in a mutual fund are: you don’t need a lot of money to start investing. You can own a piece of large companies like Apple at a very affordable price.
You can also cash out your share at any time for the full amount that it was valued at. The last benefit is that you’re not the one managing the investment. Someone else is working for you to make you money.
Stock brokerage account
A brokerage account is another way that a stay-at-home mom can plan for her retirement.
Investopedia defines a brokerage account as “an arrangement in which an investor deposits money with a licensed brokerage firm, which places trades on behalf of the customer”.
In other to invest in stocks, bonds, ETFs, and mutual funds, you’ll first need to open a brokerage account. There are online brokerage companies that will let you open an account for a low fee.
To learn more about investing in a stock brokerage account, check out Investopedia here.
Open a solo 401K
As the name implies, a solo 401K is a type of 401K that you open yourself, rather than one an employer opens for you.
Herman Thompson, CFP, said, “The solo 401(k) looks and feels like a 401(k) offered by a large corporation, but it is for owner-only or the owner and spouse businesses. A solo 401(k) can have a menu of investments, loan provisions, Roth options, and most of the other features a larger 401(k) has. Always consult a qualified tax advisor before opening a solo 401(k)”.
To be able to open a solo 401K, you need to have some earned income and receive a 1099 form. So having a small business or doing independent contractor work (freelance or gig work) will help you qualify.
A solo 401K is an excellent way for a housewife to plan for retirement.
Open a regular savings account
A housewife can save for retirement using a regular savings account. There’s no reason why you as a stay-at-home mom can’t open a savings account with your bank.
If you commit to putting a certain amount of money into the savings account every month (no matter how small), you’d have saved a significant amount of money by the time you’re ready to retire.
Note that you won’t earn a lot of interest on your savings with a regular savings account. But it’s still a good way for a stay-at-home mom to save for retirement.
Prioritize saving for retirement over saving for your kid’s college funds
I know this may sound controversial, but you should prioritize saving for your retirement before worrying about saving for your kid’s college.
I understand that as stay-at-home moms, our priority is our children. Part of taking care of our children is making sure they have a way to pay for college.
The truth is that, nowadays, there are many ways to pay for college. You can take a loan, apply for federal and state financial aid, use a Sallie Mae payment plan, get a scholarship, etc.
Some jobs will even qualify you to get loan forgiveness, so your kids may not have to pay back their loans if they took out one to pay for college.
I was able to earn a bachelor’s and master’s degree without my parents paying for my college.
Many stay-at-home moms end up living in poverty in their old age because they did not plan effectively for their own retirement. So now is the time to focus on your retirement plan so that you will be secure in the future when you’re too old to work.
Frequently asked questions on retirement planning for stay-at-home moms
Can a housewife have a 401K?
A nonworking mom can open a solo 401K if she earns income either as an independent contractor or through her own small business. A stay-at-home mom could qualify to open a solo 401K if she receives earned income and files a 1099 tax form.
Herman Thompson, a certified financial planner said “The typical 401K are employer-sponsored plans, so they have to be offered by an employer. The solo 401k looks and feels like a 401K offered by a large corporation, but it is for owner-only and owner+spouse businesses. A solo 401(k) can have a menu of investments, loan provisions, Roth options, and most of the other features a larger 401(k) has. Always consult a qualified tax advisor before opening a solo 401(k)”.
Can a stay-at-home mom open an IRA without a job?
A stay-at-home mom can open a special IRA called a spousal IRA if she does not have a job. A spousal IRA is one where you use your spouse’s income to qualify. Your spouse’s income allows you to show proof that you have a means of contributing to the IRA.
As stated before, you are eligible to contribute up to $6000 dollars a year into your spousal IRA or up to $7000 dollars if you’re over age 50. Note that you must file a joint tax return with your spouse to be eligible for a spousal IRA.
Conclusion
Saving for retirement is crucial for all stay-at-home moms. In order to save for retirement, you must have a plan and decide which method you’ll use. I’ve listed more than 8 ways you can do so in this article.
My advice is to use more than one method so that you can diversify your savings. It’s not good to keep all your eggs in one basket.
I hope that this article has helped you understand how you can plan for retirement as a housewife.
Which method do you plan on using? Comment below and let me know.
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