Money Rehab with Nicole Lapin - The Spousal IRA: the Retirement Account Every Full-Time Parent Needs

Episode Date: June 17, 2024

Some retirement options (like 401ks) can only be funded with contributions from income. So where does that leave full-time parents and homemakers? Luckily, there is a solution. Nicole breaks down the retirement option every spouse not earning income needs to know, and even how to include it in a prenup.

One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by using a Chime checking account with features like no maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at Chime.com slash MNN. When you check out Chime, you'll see that you can overdraft up to $200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that

I got from buying a $7 latte and how I am still very fired up about it. If I had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime.com slash MNN. That's Chime.com slash MNN. Chime. Feels like progress. Banking services and debit card provided by the Bancorp Bank N.A. or Stride Bank N.A. Members FDIC. SpotMe eligibility requirements and overdraft limits apply. Boosts are available to eligible Chime members enrolled in SpotMe and are subject to monthly limits. Terms and conditions apply. Go to Chime.com slash disclosures for details.

I love hosting on Airbnb. It's a great way to bring in some extra cash, but I totally get it that it might sound overwhelming to start or even too complicated if, say, you want to put your summer home in Maine on Airbnb, but you live full time in San Francisco and you can't go to Maine every time you need to change sheets for your guests or something like that. If thoughts like these have been holding you back, I have great news for you. Airbnb has launched a co-host network, which is a network of high quality local co-hosts with Airbnb experience that can take care of your home and your guests. Co-hosts can do what you don't have time for, like managing your

reservations, messaging your guests, giving support at the property, or even create your listing for you. I always want to line up a reservation for my house when I'm traveling for work, but sometimes I just don't get around to it because getting ready to travel always feels like a scramble, so I don't end up making time to make my house look guest-friendly. I guess that's the best way to put it. But I'm matching with a co-host so I can still make that extra cash while also making it easy on myself. Find a co-host at Airbnb.com slash host. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. There are some retirement accounts, like a 401k, for example, that you can only get if you're employed. So where does that leave you if you are a full-time parent or a homemaker?

Totally out of luck? Luckily, no. And today, I'm going to unpack the retirement account that you should have if you are not making income. And if you know someone in your life who's a full-time parent or the CEO of the household, shoot them a link to this episode because I am always surprised by how few people know this option exists. I'll cut right to the chase. The retirement account that non-working spouses need to make sure they have is called a spousal IRA. Quick side note here, in this episode, I'm going to be saying working spouse and non-working spouse. But let me be crystal clear. Of course, someone who is a full-time parent is working. I am trying to parent my dog, Penny, not even a human, and it still feels like a full-time job.

But non-working and working is just the term that you're going to see used by financial institutions. So I'm just going to roll with it here. A spousal IRA allows a working spouse to make contributions to an IRA on behalf of a non-working spouse. This way, a spouse without income can still reap the rewards of a special retirement vehicle. A spousal IRA can be set up as a traditional IRA or a Roth IRA. And as a reminder, a traditional IRA is a pre-tax account. So meaning the money in a traditional IRA grows tax deferred. You're not going to pay taxes on those gains until you start taking distributions out when you retire. This can be a good option if you expect to be in a lower tax bracket in retirement than you are now. In contrast, a Roth IRA is a post-tax account, meaning your money grows tax-free and qualified

withdrawals in retirement also tax-free. You already paid the taxes. This can be beneficial if you expect to be in a higher tax bracket in retirement or if you just prefer the security of knowing that all of your withdrawals are not going to be taxed. A spousal IRA has the same contribution limits as any other traditional or Roth IRA, which in 2024 is seven grand if you're under 50. For folks 50 years or older, the IRS allows additional contributions to IRAs known as catch-up contributions. The contribution limits change, but in 2024, the catch-up contribution allows you to make an extra thousand bucks as a contribution. This means you can contribute up to eight grand annually if you are in your 50s or

older, which will help bolster your retirement savings as you approach retirement age. There is also an earned income requirement, which dictates that the working spouse needs to have enough earned income to cover both their contributions and the contributions to the spousal IRA. So for example, if you both aim to max out your IRAs at $7K each, the working spouse needs to earn at least $14K. Funding a spousal IRA is really straightforward. It can be boiled down into three steps. Number one, select the right account. You and your spouse will need to dictate whether a traditional or Roth IRA is better for your financial situation. Consider consulting with a financial advisor to make an informed choice. Number two, make regular

contributions. Set make regular contributions. Set up regular contributions to ensure the account grows steadily. This can often be automated through your bank or your brokerage account. Number three, allocate investments. A common mistake people make when they open up their IRAs is thinking that once they've opened up that account, their job is done. But just opening the account is not enough. You need to allocate the

investments within that IRA that means choosing how to invest the money whether in stocks or bonds or other assets and if you're not married yet I'd actually add one more step even before step one which is to include a spousal IRA in your prenup I'll even give you some language here try something like in recognition of our mutual commitment to securing a stable financial future, the working spouse agrees to establish and make regular contributions to a spousal IRA for the benefit of the non-working spouse. This arrangement aims to ensure equitable retirement savings and financial security for both parties. Boom. These steps aren't that complicated, but the feelings around them can be. So let's try

to untangle those feels. A non-working spouse might feel guilty about their husband or their wife funding their retirement account or feelings of inadequacy for not contributing themselves. But we need to shut those feelings down ASAP. You guys are going to live happily ever after, right? You're going to live out your retirement days in notebook style. You're going to die together in the same bed on the same breath in your old, old age. So by contributing to a spousal IRA, your spouse is actually doubling the retirement nest egg that you two will presumably be sharing in retirement. So instead of only being able to have 7K growing tax-free in a Roth IRA, for example, your spouse can now have 14K growing tax-free between a Roth IRA, for example, your spouse can now have $14K growing tax-free

between two Roth IRA accounts. All because of you. But the best part is, the spousal IRA has your name on it. And I have seen many, many non-working spouses go through divorces and then have zero savings for retirement while the working spouse has a gigantic nest egg. savings for retirement while the working spouse has a gigantic nest egg. And that's just not fair. So having a spousal IRA allows for a more equitable split where both spouses can move on with comfortable futures just in case of a non-notebook ending. For today's tip, you can take straight to the bank. If you're setting up a spousal IRA, make sure you also name a beneficiary. This doesn't happen automatically, so you're going to need to set it up. This will make sure that if you can't use your IRA for any

reason, it won't fall into the hands of anyone except the person you want to have it. One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by using a Chime checking account with features like no maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at Chime.com slash MNN. When you check out Chime, you'll see that you can overdraft up to $200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that I got from buying a $7 latte and how I am still

very fired up about it. If I had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime.com slash MNN. That's Chime.com slash MNN. Chime feels like progress. Banking services and debit card provided by the Bancorp Bank N.A. or Stride Bank N.A. Members FDIC. SpotMe eligibility requirements and overdraft limits apply. Boots are available to eligible Chime members enrolled in SpotMe and are subject to monthly limits. I love hosting on Airbnb. It's a great way to bring in some extra cash. But I totally get it that it might sound overwhelming to start, or even too complicated, if, say, you want to put your summer home in Maine on Airbnb, but you live full time in San Francisco and you can't go to Maine every time you need to

change sheets for your guests or something like that. If thoughts like these have been holding you back, I have great news for you. Airbnb has launched a co-host network, which is a network of high quality local co-hosts with Airbnb experience that can take care of your home and your guests. Co-hosts can do what you don't have time for, like managing your reservations, messaging your guests, giving support at the property, or even create your listing for you. I always want to line up a reservation for my house when I'm traveling for work, but sometimes I just don't get around to it because getting ready to travel always feels like a scramble, so I don't end up making time to make my house look

guest-friendly. I guess that's the best way to put it. But I'm matching with a co-host so I can still make that extra cash while also making it easy on myself. Find a co-host at Airbnb.com slash host. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Levoy. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyrehabatmoneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at Money News and TikTok at Money News Network for exclusive video content. And lastly, thank you. No, seriously, thank thank you thank you for listening and for

investing in yourself which is the most important investment you can make