Helping my parents build their retirement investments

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Helping my parents build their retirement investments

Postby RichArt25 » Thu Feb 14, 2013 12:40 am

I am concerned about my parents' retirement plans and am looking for ways to help them. My father, age 50, has a traditional pension plan through his company and has worked there for 12 years. My mother, age 47, has been self-employed all her life and does not have a retirement plan established. Both plan to work for at least 15 more years. Neither has significant savings to start individual retirement plans for themselves.

I am in a very good position to help my parents set up accounts for their retirement. The primary option I am considering is to help them create ROTH IRAs for themselves and then to gift them money to place in the accounts. Based on current 2013 IRA contribution limits ($5500-$6500), the money I would give them for the IRAs in 2013 would not exceed the gift tax limit ($14000/person), so I avoid any penalties. I plan on contributing to their accounts until their retirement.

My questions are:
1) Is creating an IRA for each parent the best method to help them grow retirement funds on a relatively short timeframe? What other retirement plan options are available that I might have overlooked?
2) For IRAs, could I also contribute 2012 funds (in addition to 2013 funds) since neither they nor I have filed taxes for 2012 yet?
3) Would there be any tax or contribution conflicts/benefits with my father having a company pension plan and a separate IRA?
4) Am I overlooking any tax penalties/benefits for myself in regards to contributing to IRAs for my parents?
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Re: Helping my parents build their retirement investments

Postby Default User BR » Thu Feb 14, 2013 2:48 pm

Too little information. Rework the post along these guidelines:

http://www.bogleheads.org/forum/viewtopic.php?f=1&t=6212

As a self-employed person, your mother should be able to start a solo 401(k).



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Re: Helping my parents build their retirement investments

Postby pkcrafter » Thu Feb 14, 2013 4:11 pm

RichArt25 wrote:I am concerned about my parents' retirement plans and am looking for ways to help them. My father, age 50, has a traditional pension plan through his company and has worked there for 12 years. My mother, age 47, has been self-employed all her life and does not have a retirement plan established. Both plan to work for at least 15 more years. Neither has significant savings to start individual retirement plans for themselves.

I am in a very good position to help my parents set up accounts for their retirement. The primary option I am considering is to help them create ROTH IRAs for themselves and then to gift them money to place in the accounts. Based on current 2013 IRA contribution limits ($5500-$6500), the money I would give them for the IRAs in 2013 would not exceed the gift tax limit ($14000/person), so I avoid any penalties. I plan on contributing to their accounts until their retirement.

My questions are:
1) Is creating an IRA for each parent the best method to help them grow retirement funds on a relatively short timeframe? What other retirement plan options are available that I might have overlooked?
2) For IRAs, could I also contribute 2012 funds (in addition to 2013 funds) since neither they nor I have filed taxes for 2012 yet?
3) Would there be any tax or contribution conflicts/benefits with my father having a company pension plan and a separate IRA?
4) Am I overlooking any tax penalties/benefits for myself in regards to contributing to IRAs for my parents?


I agree with Default User that there isn't enough information. The main question is do your parents earn enough to fund their own retirement, and if so, why aren't they? Actually, my response doesn't depend on their ability, I would not recommend investing any money in their names. If you want to save for their later years, use your own accounts and provide income when it's needed.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
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Re: Helping my parents build their retirement investments

Postby NYBoglehead » Thu Feb 14, 2013 4:20 pm

^Not enough information to get any sort of detailed responses/recommendations.

Your dad is going to get a DB pension. What % of his income will this replace? You said they don't have any retirement savings, but no other info is given about their financial situation. Do they have any debt or cash savings? These are important things to consider before taking any action.

Your desire to help your parents is admirable. More info is needed before we can make thoughtful recommendations on how to help them.
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Re: Helping my parents build their retirement investments

Postby Peter Foley » Thu Feb 14, 2013 4:39 pm

I think the key is that your parents "don't have significant savings to start retirement plans." Do they have enough income? If they are in the 25% bracket or higher they might be better off putting money in a deferred account. You could gift them 75% of what they put in.

What you are suggesting would certainly work, it just might not be the best means of accomplishing your goal. Knowing your parent current tax bracket and estimated need for income beyond SS and your father's pension would be helpful.
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Re: Helping my parents build their retirement investments

Postby BL » Thu Feb 14, 2013 5:00 pm

As for your basic question, Roth IRAs are available to those whose joint income is up to $170k or so. You (or your spouse) must have taxable earned income for that amount to be added to a Roth. I believe it is $5,000 each for 2012 (by April 15,2013) and $5500 for 2013 plus an extra $1000 for anyone over 50. Roth contributions, but not earnings, can be withdrawn at any time without penalty.

As mentioned, we have no idea what the financial position of your parents is or how much their pension will be. Will they also have social security? Will these two be enough to live on? Do they own a home and do they have a mortgage? Do they have other debts (cars, credit cards)? Is a 401k available at work? What tax bracket are they in? Did they spend it all on their kids? Are there dependent children? Do they currently have any disposable income that they can save and do they have other kinds of savings? Some people manage well on a low income and others live beyond their means, no matter what their income.
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