Not all households have two wage earners. By choice or circumstance, either you or your spouse may be out of the work force for an extended period of time. But that doesn’t mean you can’t make progress toward your joint financial goals, such as a comfortable retirement. It does mean, however, that you need to carefully review your situation and make the right financial moves.
For starters, consider one of the best retirement-savings vehicles you have available: an Individual Retirement Account, or IRA. Even if your spouse isn’t earning income, he or she can open a “spousal IRA” to which you, as the income-earning spouse, can contribute. (Keep in mind, though, that you must file a joint tax return if you contribute to a spousal IRA.) Depending on your income level, you can designate a spousal IRA as either a traditional IRA, which grows on a tax-advantaged basis, or a Roth IRA, which can grow tax-free, provided your spouse has held the account for at least five years and is at least age 59½ before taking distributions. And a spousal IRA has the same contribution limits — $5,000 in 2010, or $6,000 if your spouse is 50 or older — as a traditional or Roth IRA.
Clearly, if you want to increase the cumulative opportunities for building tax-advantaged resources for both your retirements, a spousal IRA can be an attractive option. Furthermore, if your spouse allocates his or her IRA funds to investments that complement — rather than duplicate — those investments inside your IRA, the spousal IRA can prove to be a valuable tool for diversifying your overall holdings. While diversification, by itself, cannot guarantee a profit or protect against loss, it can help reduce the effects of volatility on your portfolio. To help achieve this diversification between your IRA and the spousal IRA, you may want to work with a financial advisor. Another move you can make to help your stay-at-home spouse is easy to accomplish but also easy to overlook — namely, updating your beneficiary designations on your 401(k), IRA, other investment accounts, life insurance policies and all financial and legal documents. This step is particularly important if you’ve been divorced or widowed, and you want to be sure your stay-at-home spouse comes into possession of all the assets you had intended for him or her.
Of course, in this day and age, “stay-at-home” status can change quickly. If your spouse enters or re-enters the work force, you as a couple should consider adjusting your financial plans. Your spouse can continue contributing to the spousal IRA you’ve established, but he or she may now have other opportunities in which to save for retirement, such as a 401(k) or similar employer-sponsored retirement plan. And if your spouse has been out of the work force for a while, it will be important for him or her to contribute as much as possible to a retirement plan.
In any case, whether your spouse stays at home or returns to the work force, you’ll want to be proactive in making sure he or she doesn’t get left behind on the road to financial security.
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