Irregular Income? How to Still Save for Retirement

Not every worker fits the classic 9-to-5 mold.

In fact, millions of Americans identify as self-employed, part-time workers, or homemakers, bucking traditional career paths either by circumstance or choice. And while saving for retirement may be more of a challenge without a steady paycheck, that doesn’t mean you should lose sight of your financial future.

“Time is fleeting, and you don’t want to regret not putting away even small amounts when you can,” says Chris Kawashima, CFP^®, a senior research analyst at the Schwab Center for Financial Research. “Even if you go against the grain with a more untraditional way of work, you can still stay on track for retirement.”

Here are some different financial situations that might relate to your current household—and how to keep on track to reach your retirement goals.

You want to ditch the 9-to-5

If you’re ready for a new stage in life, abandoning a traditional job is no reason to also abandon good financial sense—or your retirement goals. 

“Before changing careers or that steady line of work, ask yourself: Do you have the assets to carry you through the transition?” Chris says.

Making the leap from financial security to a less predictable path requires preparation. It’s important to have an emergency fund for three to six months’ expenses. If you’re starting a business, you may want to increase that amount to double—or even more—before taking the leap from stable employment. 

“If you’re starting a business, it’s not only about your own personal expenses you need to support during the transition,” Chris warns. “Your business may require you to take on overhead expenses as well as any one-time costs needed to get you up and running.”

Once you have established your personal safety net, you can start thinking about where to put away what income you can.  

Contractors and self-employed workers have options to save for retirement, including starting your own individual 401(k), a SEP IRA, or a SIMPLE IRA. Compared to traditional IRAs, these retirement savings plans provide the potential to save more and reduce taxable income. If you max out one of these plans, you can still put additional retirement savings into a personal IRA.

If you’re not starting a business but are working for a company on a part-time or temporary basis, check to see if a company retirement plan is available to you. With the current employment demand, more employers are allowing part-time workers to contribute to employer-sponsored 401(k) plans. If that’s the case for your company, sign up during the next open enrollment period or when you become eligible, and try to contribute enough to get the full match, if available.

If a company plan is not available to you, earned income from part-time work—including tips, professional fees, and self-employed income—allows you to open, and contribute to, your own IRA. By contributing to your own IRA, you may be able to get a tax deduction on the amount you contribute. 

You’re not working, but your spouse is

If you’re part of a single-income household, you might be able to still contribute to an IRA without any earned income.

Enter the spousal IRA. It’s not a different IRA type but simply a traditional or Roth IRA that lets a nonworking spouse have access to the tax benefits of one. The account is not jointly owned and is a separate one set up in your own name. 

“A spousal IRA can be a great tool if the working member of the household has the income to spare,” Chris says. “You can save and invest more, and you may be able to get a tax deduction and potential tax credit on the contribution.”

There are some important rules to keep in mind with a spousal IRA: You must be married and file a joint tax return in order to open one. Typical IRA income and contribution limits apply, and the total contributions of your IRAs can’t be more than the taxable income reported on your joint return.

You’re in a tight spot

Even if your budget is tight, chances are you can still put aside something—even a small amount. “To save at all with an unstable or low income is a tremendous amount of work,” Chris says, “but with the right mindset, savings can simply become a part of your budget.”

For example, you could try making your savings automatic and out-of-sight like a subscription service, putting away $20—at first—each month into a savings account or IRA. Then, if you find that’s comfortable, gradually increase that amount to fit in with the rest of your budget.

“Everyone has a sweet spot where they can fund toward their future and take care of the bills. And Uncle Sam can help,” Chris says.

If you’re a lower-income taxpayer, you might be eligible for a Saver’s Credit—a tax credit worth up to $1,000 for singles or $2,000 if you’re married and filing jointly. You’re eligible for the credit if you’re 18 years old or older, not claimed as a dependent on another person’s return, and not a student.

The percentage of your contribution that you can claim depends on your income level and filing status, so check carefully to see how you might qualify.

Bottom line

Regardless of the reasons, financial uncertainty is a familiar state for millions of Americans. “You can’t put off planning for your future until the perfect moment arrives because there is no perfect moment,” says Chris. “Saving a little bit now is always better than waiting and saving nothing.”