Caregiver Investing: Maintaining Savings During Caregiving Gaps

Key Takeaways

• Spousal IRA: a married caregiver without earned income can contribute to an IRA using the working spouse's earned income, up to $7,000 ($8,000 if 50 or older) per year in 2026.
• Social Security impact: caregiving years with no earnings count as $0 in the 35-year average used to calculate benefits. Fewer zero years = higher benefit. Spousal Social Security (up to 50% of the working spouse's benefit) may partially offset the impact.
• Avoid liquidating existing retirement accounts during caregiving if at all possible. Distributions before 59.5 trigger income tax plus a 10% penalty and permanently destroy compounding potential.
• Life and disability insurance for the working spouse becomes critically important when the caregiver is not in paid employment. The loss of the working spouse's income would be financially devastating without adequate coverage.
• When caregiving ends: immediately maximize retirement contributions, use catch-up limits if 50 or older, review Social Security record for accuracy, and update beneficiary designations.

Spousal IRA

The spousal IRA is a critical tool for caregivers who are married. It allows a non-working spouse to contribute to a traditional or Roth IRA using the working spouse's earned income. Both spouses can each contribute up to $7,000 ($8,000 for those 50 and older) in 2026, as long as the working spouse earns at least the combined contribution amount. A couple where only one person works and both contribute to IRAs can save up to $14,000 per year collectively in tax-advantaged accounts, preserving the non-working caregiver's independent retirement savings.

Maintaining Insurance Coverage

When one spouse leaves paid employment to provide caregiving, the working spouse's income becomes the sole household income. Two insurance priorities arise: (1) life insurance on the working spouse sufficient to replace income if they die; and (2) disability insurance on the working spouse, since disability is more likely than death during working years and would simultaneously eliminate income and potentially create additional care needs. The caregiver's health insurance also needs a plan: employer-sponsored coverage through the working spouse, the ACA marketplace, or COBRA from the previous employer.

Protecting Existing Retirement Accounts

Reduced household income during caregiving creates pressure to tap retirement accounts. Doing so should be a last resort: pre-59.5 distributions from traditional IRAs and 401(k)s are subject to income tax plus a 10% early withdrawal penalty. Roth IRA contributions (not earnings) can be withdrawn penalty-free. Before withdrawing from any retirement account, explore other options: reducing spending, temporary part-time work compatible with caregiving, family financial assistance, government programs (Medicaid, PACE, VA benefits for veterans), or caregiver support programs.

Social Security and Caregiving

The Social Security Administration calculates retirement benefits using the 35 highest-earning years of the worker's record, indexed for wage inflation. Years with zero or low earnings count as zeroes. A caregiver who takes 5 to 10 years out of the workforce will have those years reduce their benefit average unless they already have 35 strong earning years elsewhere. Reviewing the Social Security earnings record annually at ssa.gov allows caregivers to understand the projected impact and plan accordingly.

Frequently Asked Questions

Can a caregiver who leaves paid work contribute to an IRA?

A caregiver who leaves paid employment generally cannot contribute to their own IRA from caregiving income alone because IRA contributions require earned income equal to or greater than the contribution amount. However, a married caregiver whose spouse has earned income can contribute to a spousal IRA. The spousal IRA rule allows a married couple filing jointly to contribute up to the IRA limit for each spouse ($7,000 each in 2026, $8,000 each if 50 or older) as long as the household has sufficient combined earned income to cover both contributions. This allows the non-earning caregiving spouse to continue building IRA savings during caregiving years.

How does caregiving affect Social Security benefits?

Social Security retirement benefits are calculated based on the 35 highest-earning years of the individual's work history. Years with no earnings count as zero in the calculation and reduce the average. A person who takes 5 years off for caregiving has those 5 years counted as $0 in their Social Security benefit calculation (unless they had other high-earning years to replace them). If a caregiver is married, they may qualify for spousal Social Security benefits (up to 50% of the higher-earning spouse's benefit) at retirement, which can partially offset the impact of years with low or no earnings. Spousal benefits do not reduce the working spouse's own benefit.

What financial steps should a caregiver take when caregiving ends?

When caregiving ends and paid employment resumes: immediately maximize retirement account contributions, prioritizing employer match capture first, then filling tax-advantaged accounts (401(k), IRA, HSA if applicable) to the maximum allowed. If 50 or older, use catch-up contributions ($7,500 extra to 401(k), $1,000 extra to IRA in 2026). Review Social Security earnings record to confirm it accurately reflects work history (errors can be corrected within 3 years of the year in question). Update beneficiary designations if they have not been reviewed during the caregiving period. Re-evaluate investment allocation to account for the abbreviated saving window remaining before retirement.