On average, women live at least three years longer than men and often take breaks during their careers to care for young children. These breaks can result in reduced earnings over the life of their careers. Add in the chronic under- and unemployment of military spouses with the stressors of military life and there is a recipe for financial disaster. Although we have male MilSpouses, too, the vast majority are still women. However, our male MilSpouse counterparts often experience the same career-break and employment issues as we female MilSpouses do.
The reality is not all service members retire from the service after 20 years or more, and the retirement structure is changing. Military spouses can and should start contributing to retirement savings as soon as they possibly can.
How can MilSpouses contribute to their own retirement?
If a MilSpouse is employed and the employer offers a 401(k) or similar plan, they should participate. NOW. Start with something, even just 5% of your compensation, and if the employer matches, even better. There are two benefits here. One is free money if your employer matches your contributions, although you probably have to participate for a certain amount of time to be vested. Two, your contributions will be tax deferred. That means they will be contributed pre-tax, so while they will reduce your take home pay, they will also reduce your taxable pay.
An Individual Retirement Arrangement (IRA) is an option, even if traditional work pensions and retirement plans are not. Usually one has to have earned income to contribute to a Traditional IRA or a Roth IRA. But, there is a provision for a spousal IRA. This means that even if only one spouse is working, contributions can be made to an IRA for the benefit of the non-employed spouse.
There are some income limits for contributions to IRAs, so be sure to check on those. The contribution limit per individual to either a Traditional or Roth IRA are $5,500 per year total for those under the age of 50, with an additional $1,000 catch-up contribution for those over the age of 50.
Traditional IRA contributions may be made with pre-tax dollars, or may be deductible on your tax return, depending the couple’s tax situation. Taxes will be paid on both the contributions and the earnings when they are distributed, unless a specific situation applies.
Roth IRA contributions are made with after tax dollars, but grow tax free. No taxes will be due on distributions when they are taken after the age of 59 ½.
Contributions to either Traditional or Roth IRAs must be made by the April due date of the individual tax return for the year prior. Just be sure to designate for which year the contributions are being made. A tax return can even be filed early in the filing season with the contributions reported on it, and the refund can then be used to fund the IRA that was reported on the return.
At age 70 required minimum distributions must be taken. Any early distributions before the age 59 1/2 may be subject to an additional 10% penalty, in addition to any regular tax that may be owed.
See this great link on the IRS website for more information on IRAs.