April 29, 2021
Mothers with young children have had it especially hard during the pandemic. It is depressing, but not exactly surprising, that women whether married or not have taken on the bulk of stay-at-home and remote-learning responsibilities. Many have lost jobs, or had to step away from their paid careers to keep the household functioning.
For mothers who have had to make all too many sacrifices, I want you to do something very important for yourself within the next two weeks.
There are two important dates in May you yourself need to honor. May 9th is Mother’s Day. May 17th is the deadline for contributing to a 2020 Individual Retirement Account. (The deadline was extended from the typical April 15th.)
There is one financial move to honor both dates: I want you to contribute to your own IRA.
Spousal IRA rules
If you are married, even if you didn’t have earned income in 2020, you are allowed to contribute to your own IRA based on the earned income of your spouse.
The IRS has a special rule that allows for what is called a Spousal IRA: married couples that file a joint tax return can fund IRAs for both the spouse with income, as well as a spouse who doesn’t get paid. (You won’t ever hear me refer to stay-at-home mothers as “not working.” It is such important, rewarding, and often hard, work.)
If you already have an IRA at a financial institution you can make a 2020 contribution up until May 17th. No IRA of your own? Listen to me: This is not something you ask your spouse to let you have. This is something you demand of yourself for yourself. Period.
IRA Rules for Single Moms
If you aren’t married, you can contribute to an IRA as long as you have earned income for the year that is at least equal to what you contribute to the retirement account. Earned income is wages and salary.
Contribution Limit for 2020 Tax Year
For the 2020 tax year, if you are younger than 50, you can contribute $6,000 to your IRA. If you are at least 50, the limit is $7,000.
I want to be very clear: Those are the maximums you can contribute for 2020. But you can make smaller contributions if that is what your household can afford right now. Just promise me you will push to save something, and you will celebrate what you can do.
Discount brokerages such as Fidelity, Schwab and Vanguard offer IRAs. There is no special designation for a “spousal IRA.” You will just decide between opening a Traditional IRA or a Roth IRA.
I recommend the Roth IRA. If your single tax federal tax return shows modified gross income under $125,000, or your joint federal tax return shows modified gross income is below $196,000, you can contribute up to those maximum limits. If your single modified income is between $125,000-$140,000 or your joint modified income is between $196,000 and $206,000 you can contribute a reduced amount to a Roth IRA. For higher incomes, keep in mind there is no income limit to be able to contribute to a Traditional IRA (though there are rules on whether you can claim the contribution as a deduction.)