Saving for the future is a key part of financial wellness, whether you’re setting aside money for retirement or building your emergency fund. But practicing saving money can be difficult if your income varies. Albeit you may have financial leeway during certain months, other months may feel tight. For these reasons, having an understanding of your income and expenses can go a long way. So, let’s talk about how to save for retirement with irregular income.
What Is Irregular Income?
When your income varies from one month or season to the next, that is known as irregular income. Here are a few examples of such income:
- Owning a business, and your income fluctuates different times of the year.
- Hourly worker and have inconsistent shifts.
- You are a teacher and doesn’t receive paychecks during the summer.
Millions of workers don’t have a steady 9-to-5 job, 365 days a year like the ones above. Nonetheless, there are still ways to save for retirement with irregular income.
01. Small Business Owners and Contractors
If you’ve ditched the 9-to-5 and started your own business, it’s no longer about your personal expenses. As a startup, you will no doubt incur one-time costs, as well as take on overhead expenses. Once you established a safety net, you can start thinking about how to save money wherever you can.
Self-employed and contract workers have options to save for retirement, such as starting a SIMPLE IRA, individual 401(k), or a SEP-IRA. Plus, these retirement savings plans provide the potential to reduce taxable income and save more compared to traditional IRAs. And you can still put additional retirement savings into a personal IRA if you max out one of these plans.
02. When Only One Spouse Is Working
It’s possible to be able to still contribute to an IRA without any earned income if you’re part of a single-income household.
You can let the nonworking spouse have access to the tax benefits of a Roth or traditional IRA. This would be a separate account set up in your own name, and is not jointly owned. If the working member of the housed has the income to spare, a spousal IRA can be an excellent financial tool. There’s also the potential to invest and save more, and the potential for a tax credit and deduction on the contribution.
However, be aware that there are some important rules to follow with a spousal IRA. For example, total contributions of your IRAs cannot exceed the taxable income reported on your joint return. And you must be married and filing jointly in order to open one.
03. Saving For Retirement With Irregular Income and Tight Budget
Even on a tight budget, chances are that you can still put aside money for retirement, albeit it may be a small amount. While it takes tremendous effect to save with low or unstable income, it’s doable with the right mindset. In fact, savings can simply become a part of your budget.
You might even be eligible for a Saver’s Credit if you’re a lower-income taxpayer. This credit is worth up to $1,000 for singles or $2,000 if you’re married and file jointly. Eligibility starts at 18 years or older, you’re not a student, and not claimed as a dependent on another person’s return.
Financial uncertainty is a familiar state for millions of Americans, regardless of the reasons. So, you can’t put off planning for your future until the perfect time arrives, because there is no perfect time. Saving a small amount now is always better than waiting and saving nothing. To learn more about how you can save for retirement with irregular income, speak with one of our professional financial advisors. We can help you save for a successful retirement!