Retirement for Stay-at-Home Parents
Many families make a sacrifice by having one parent stay at home to raise their children. If the stay-at-home parent remains at home and unemployed for the majority of his or her working years, what happens when the stay-at-home parent reaches retirement age?
Without employment, a stay-at-home parent isn't going to have an employer-sponsored retirement plan to help him or her out during the golden years. To qualify to open an IRA, the IRS requires you earn an income, so that's out, too! Even if you're not generating an income, you need to establish retirement savings, but with the limitations on IRAs, what are your options?
If you're married, you can open a spousal Individual Retirement Account (IRA). The spousal IRA is designed for nonworking spouses to save for retirement with funds from their spouses' income. The 2008 maximum contribution is $5,000 a year in a spousal IRA (or $6,000 per year if you're 50 or older). You can open a spousal IRA as a Roth or Traditional IRA. With a spousal Roth IRA, you could invest $4,000 a year for 20 years and with an average return of 8% per year – end up with almost $200,000 that you won't owe taxes on. Uncle Sam already got his share from the money you invested – which is the primary advantage of Roth IRAs over most other types of retirement accounts which do not tax the original investment but tax your withdrawals. The other benefit of a spousal Roth IRA is that you could withdraw your investment any time, without penalty. The earnings of your contributions must remain in the account for a minimum of five years and until you're at least 59 or else you'll pay big in taxes and penalties, but the amount you contribute can be withdrawn and it won't cost you anything. Ideally, you would leave your money in the IRA for as long as possible, but it's always nice to know you have access to your money in case of an emergency.
If you're not married, or otherwise don't meet the requirements for a spousal IRA, you could always look at other interest-earning deposit accounts for establishing a retirement fund. There are many high interest savings accounts, checking accounts, fixed rate IRAs, certificates of deposit and money market accounts which can be opened for as little as $1 – and are virtually risk free, meaning you aren't gambling with the money you set aside. The earlier you start and the more consistent you are with saving money, the better off you'll be when you reach your retirement years.