Navigating the Return – Financial and Emotional Considerations for a Spouse Rejoining the Workforce

The trick is to move through the chapters of our lives while staying true to our values and nurturing all the pillars of our well-being. As Dr. Seuss famously put it, “Step with care and great tact and remember that Life’s a Great Balancing Act.”

A pivotal moment in a family’s financial-life journey can occur when a spouse chooses to reenter the workforce after an extended hiatus. The break may have been due to activities like raising children, caring for a family member, going back to school, or taking time off to focus on something unrelated to one’s career. The decision for a spouse to return to work requires careful planning and thoughtful consideration. Here’s a guide to help you and your partner turn the page and jump into this exciting next chapter.

Let’s start with some financial considerations.

Income Projection & Budget Reassessment

We advise our clients to estimate a spouse’s potential income based on industry standards, skill, experience and the current job market. We also recommend reassessing the household budget to accommodate the changes in income and expenses, a discussion which often includes aligning on values of how new potential income might be directed. Does additional income mean shoring up the emergency fund? Does it mean tackling that renovation? Finally, this is often a good time to revisit and potentially adjust the emergency fund.

Of course, it’s not all about money. The personal growth and career development opportunities opened up by rejoining the workforce can be quite meaningful. We’ll discuss that further on below.

Tax Implications

If a married couple files jointly, it is crucial to consider that any additional income will be taxed at the marginal tax rate applicable to their combined income. In tax year 2024, if a spouse reenters the workforce with a $70,000 salary, added to their partner’s $700,000 salary, that additional income would potentially be taxed at 37%, instead of the 22% marginal rate had they filed individually. Both spouses should review and update their W-4 forms to ensure proper tax withholding and prevent under-withholding that can lead to a large tax bill at the end of the year. We advise our clients to also consult their tax advisor to determine if estimated quarterly tax payments should be made. 

Tax Mitigation Strategies

Exploring tax-efficient strategies to mitigate increased tax liability is advisable. While a detailed exploration of these strategies is beyond the purview of this article, general areas that might be considered with your financial advisor include:

• Retirement Planning – Consider maximizing contributions to retirement accounts, both employer-sponsored and individual. This can help boost long-term financial security while reducing the tax bill.
• Earned Income Tax Credit (EITC) – If household income is within the qualifying range, the EITC can provide significant tax savings.
  
• Child and Dependent Care Credit – If a family incurs expenses for childcare while both spouses are working, they may qualify for this credit, which can help offset a portion of childcare costs.
  
• Self-Employment – If the spouse rejoining the workforce plans to be self-employed, it is advisable to consider the tax benefits of certain deductions like business expenses, home office usage or mileage put on the car, plus other benefits like funding a SEP IRA or Individual 401(k).
  

Employment Benefits

A spouse returning to the workforce may receive important employment benefits that can be beneficially integrated into a family’s financial-life plan. Below are some common examples. 

• Employer-Sponsored Retirement Plans – One might consider maximizing contributions to employer-sponsored retirement plans, like a 401(k) or 403(b). It’s also wise to take advantage of any employer matching contributions, if available. If cash flow is strong and the plan(s) offer it, consider utilizing mega backdoor Roth contributions to make the maximum contribution amount allowable in a given tax year. 
• Health Insurance – What health insurance options are available through a spouse’s new employer? After comparing the coverage and costs of a new plan with the current plan, it may be advisable to change health insurance providers.
• Health Savings Account (HSA) – If the spouse’s new job offers a high-deductible health plan (HDHP), consider contributing to an HSA. These contributions are tax-deductible and the funds can be used for medical expenses.
• Dependent Care Flexible Spending Account (FSA) – This account allows one to set aside pre-tax dollars to pay for dependent care expenses, like after-school programs, daycare or care for a dependent adult.
• Other Benefits – Life insurance, disability insurance, education reimbursement and other employment benefits can add significant value and should be factored into the overall financial-life plan.

Strategic Investment Planning

A transition is a good time to meet with a financial advisor to review one’s investment strategy and ensure it aligns with the new financial picture. This conversation will be unique to each individual and this article is unable to give tailored investment advice. Nonetheless, we note that couples undergoing this transition often consider the following with their financial advisor, in addition to other strategies.

• Tax-Efficient Investing – To minimize capital gains taxes, one might consider tax-efficient investment strategies, such as investing in municipal bonds or tax-managed funds.
  
• Capital Gains and Losses – If a family has taxable investment accounts, they might consider strategies to offset capital gains with losses, a strategy known as “tax-loss harvesting,” which can reduce a family’s overall tax liability.
  
• Backdoor Roth IRA(s) – Roth IRAs are vehicles funded with after-tax dollars. The growth and later withdrawals are tax-exempt; certain criteria needs to be met first. However, there is an income phaseout which precludes joint filers from making a contribution directly into a Roth IRA. The phaseout occurs between $230,000 and $240,000 for joint filers in 2024. The backdoor method allows those with higher incomes who can’t contribute in the typical manner to still take advantage of a Roth IRA. We advise clients to consult with their tax advisor and financial advisor to ensure they are eligible to utilize this strategy and not run afoul of IRA aggregation rules. 

Childcare Costs

It’s no secret that childcare costs, especially in California, are quite high. When a spouse returns to the workforce, these childcare costs may increase. Estimating additional childcare expenses and working them into the family budget is advisable.

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Now that we’ve covered several financial considerations, let’s turn our attention to the emotional side of things. After all, many people return to the workforce because it fulfills their emotional needs rather than strict financial goals. 

The Why

As a spouse returns to the workforce, we advise couples to discuss “the why”. Is it out of financial necessity? Is it to take some pressure off of the breadwinner? Is it to provide an example to the children? Maybe it is to help pay for kids’ college tuition or bulk up the retirement fund. Whatever the reason, it is important to align on the why and the desired results that are driving it. That alignment can strengthen a partnership and provide a sense of direction and purpose.

Identity and Sense of Self

Reentering the workforce can be both exhilarating and intimidating. A spouse may experience a range of emotions, from excitement about new opportunities to anxiety about fitting into a professional environment again. Open communication and emotional support are often critical during the transition period. For a deeper dive into the emotional considerations around big life transitions, check out this recent blog penned by my colleague Leigh Shimamoto – JD, CFP®. We also recommend reading Tom Rath’s “Wellbeing: The Five Essential Elements,” a deeply insightful work on balancing one’s well-being in five critical areas: social, financial, physical, community and career, the last of which could mean a job or other ways to use one’s time like volunteering, creating art or any number of other gratifying pursuits.

Professional Development

To stave off potential “imposter syndrome,” one might invest in professional development opportunities, such as training or certifications, in order to feel more confident and up-to-date with industry standards. However, it’s important to bear in mind that this financial and time commitment could put pressure on the other spouse.

Work-Life Balance

Balancing work and family responsibilities can be tough, especially after being out of the workforce. Many consider exploring flexible work arrangements such as remote work, part-time positions or job sharing. These arrangements can ease the transition and help maintain a healthy work-life balance.

We have observed that clients often reevaluate household responsibilities and consider delegating tasks or hiring help if necessary. Sharing the workload can reduce stress and create a more harmonious home environment. Specific recommendations we often give in this area include creating a shared digital calendar, making a clear list of family responsibilities and holding a weekly family planning meeting.

Relationship Dynamics

A shift in household roles and responsibilities can put a strain on a relationship. We advise maintaining open and honest communication about expectations, concerns and support needs. At this juncture, it is often beneficial to have a clear discussion about professional goals and career paths. For many couples, it could be that one had their head down in their job just making money for years with little conversation about their career goals. Regardless of compensation difference, each person’s goals and hopes should ideally be honored and prioritized

Regular check-ins can help both partners feel heard and understood. Couples therapy and family counseling can be great tools to reinforce relationships during the transition period. We have also seen couples benefit from honoring a weekly hour to disconnect (without kids) and be present. 

The decision for a spouse to return to the workforce is complex. With thoughtful planning, open communication, and mutual support, families can navigate this transition smoothly and seize the opportunities it presents. Ultimately, this journey is one that both partners share. Embracing this new chapter together can deepen bonds and bring new fulfillment. The challenges faced along the way are not just obstacles to overcome, but also opportunities to grow stronger as a team, making the experience profoundly rewarding for all involved.

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