IRA account for my parent

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norm52
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IRA account for my parent

Post by norm52 »

So my mom who is 55 is going to make a traditional IRA account with fidelity. She is married to an 70 year old person whose annual pension income around 150k. My mom makes around 24k. They are filed jointly for taxes.

What should be here investments? How much should she put in bonds. I kind of thinking doing a target date fund since she is not really finance savy etc.

In addition I am thinking of opening a self employed 401k account. I've done the basic research but do I any of you have any advices in this regard?

Any advice or suggestion is much appreciated. What can she do at this point to best prepare for the retirement?
oldfatguy
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Re: IRA account for my parent

Post by oldfatguy »

norm52 wrote: Mon May 03, 2021 1:59 pm So my mom who is 55 is going to make a traditional IRA account with fidelity. She is married to an 70 year old person whose annual pension income around 150k. My mom makes around 24k. They are filed jointly for taxes.
...

What can she do at this point to best prepare for the retirement?
Is her spouse's pension set up with a survivor benefit? If so, what %? Honestly if it is a 50% or more survivor benefit, it seems like she is pretty well set for retirement.

With regard to your mother's retirement investments, target date funds are great for someone who doesn't want to manage their investments.
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RickBoglehead
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Re: IRA account for my parent

Post by RickBoglehead »

norm52 wrote: Mon May 03, 2021 1:59 pm So my mom who is 55 is going to make a traditional IRA account with fidelity. She is married to an 70 year old person whose annual pension income around 150k. My mom makes around 24k. They are filed jointly for taxes.

What should be here investments? How much should she put in bonds. I kind of thinking doing a target date fund since she is not really finance savy etc.

In addition I am thinking of opening a self employed 401k account. I've done the basic research but do I any of you have any advices in this regard?

Any advice or suggestion is much appreciated. What can she do at this point to best prepare for the retirement?
Lots of the picture is missing here. Observations:

If your mother makes $24,000, how much is left after taxes and expenses? Can she really afford an IRA?

Why would you have her contribute to a traditional IRA? She qualifies for a Roth IRA.

Given that your mother doesn't have an IRA (it sounds like), she can do catchup contributions, so a max of $7,000 for 2020 or 2021.

Is the 401K for your mother, or you? If for you, then it should not be in a thread entitled "IRA account for parent".
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KlingKlang
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Re: IRA account for my parent

Post by KlingKlang »

A target date fund is a good choice for someone who is just opening an IRA account. Once they have accumulated enough they can always exchange into other (lower cost index) funds later with no tax consequences.
RickBoglehead wrote: Mon May 03, 2021 2:08 pm Why would you have her contribute to a traditional IRA? She qualifies for a Roth IRA.
Since they file jointly they may be in the phaseout range for contributing to a Roth IRA. If not a Roth IRA would be a good idea.
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RickBoglehead
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Re: IRA account for my parent

Post by RickBoglehead »

KlingKlang wrote: Mon May 03, 2021 2:14 pm A target date fund is a good choice for someone who is just opening an IRA account. Once they have accumulated enough they can always exchange into other (lower cost index) funds later with no tax consequences.
RickBoglehead wrote: Mon May 03, 2021 2:08 pm Why would you have her contribute to a traditional IRA? She qualifies for a Roth IRA.
Since they file jointly they may be in the phaseout range for contributing to a Roth IRA.
$150,000 + $24,000 = $174,000. Based on that information provided, they would be well below the phaseout.
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norm52
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Re: IRA account for my parent

Post by norm52 »

She will inherit 50% of her spouses' pension. Pension is also adjusted by 2% fixed regardless of the inflation. Also she has a 870k house fully paid off and 900k house which is being paid off by her spouse which she will inherit. I am not entirely sure on the details but my mom and the husband is looking to pay it off in the next 15 years.

I believe she is making 24k pretax (washington state). I was thinking she should do traditional IRA since she files jointly with her husband currently. Husband makes 150k in pensions so tax would lower in the future? She is thinking withdraw the funds when he passes away. Please tell me if I am wrong.

My mom owns a business, so I thought she could start a self employed 401k account.
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KlingKlang
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Re: IRA account for my parent

Post by KlingKlang »

RickBoglehead wrote: Mon May 03, 2021 2:21 pm
KlingKlang wrote: Mon May 03, 2021 2:14 pm A target date fund is a good choice for someone who is just opening an IRA account. Once they have accumulated enough they can always exchange into other (lower cost index) funds later with no tax consequences.
RickBoglehead wrote: Mon May 03, 2021 2:08 pm Why would you have her contribute to a traditional IRA? She qualifies for a Roth IRA.
Since they file jointly they may be in the phaseout range for contributing to a Roth IRA.
$150,000 + $24,000 = $174,000. Based on that information provided, they would be well below the phaseout.
They're close enough to check. Her 70 year old husband might be collecting Social Security. People with $150k/year pensions often have other investment income.
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RickBoglehead
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Re: IRA account for my parent

Post by RickBoglehead »

norm52 wrote: Mon May 03, 2021 2:22 pm She will inherit 50% of her spouses' pension. Pension is also adjusted by 2% fixed regardless of the inflation. Also she has a 870k house fully paid off and 900k house which is being paid off by her spouse which she will inherit. I am not entirely sure on the details but my mom and the husband is looking to pay it off in the next 15 years.

I believe she is making 24k pretax (washington state). I was thinking she should do traditional IRA since she files jointly with her husband currently. Husband makes 150k in pensions so tax would lower in the future? She is thinking withdraw the funds when he passes away. Please tell me if I am wrong.

My mom owns a business, so I thought she could start a self employed 401k account.
If your Mom's BUSINESS makes $24,000, then it has some expenses, no? Or is it $24,000 net of all expenses? What's her Schedule C look like?

A self-employed 401K would eat up the entire balance. There would be no money left for an IRA, traditional or Roth. She could contribute up to $19,500 plus $6,500 catchup for a total of $26,000. There is no reason to do a traditional IRA if the 401K can take the whole balance.

Since the husband has zero earned income, he can't contribute any money to her IRA.
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Topic Author
norm52
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Re: IRA account for my parent

Post by norm52 »

KlingKlang wrote: Mon May 03, 2021 2:25 pm
RickBoglehead wrote: Mon May 03, 2021 2:21 pm
KlingKlang wrote: Mon May 03, 2021 2:14 pm A target date fund is a good choice for someone who is just opening an IRA account. Once they have accumulated enough they can always exchange into other (lower cost index) funds later with no tax consequences.
RickBoglehead wrote: Mon May 03, 2021 2:08 pm Why would you have her contribute to a traditional IRA? She qualifies for a Roth IRA.
Since they file jointly they may be in the phaseout range for contributing to a Roth IRA.
$150,000 + $24,000 = $174,000. Based on that information provided, they would be well below the phaseout.
They're close enough to check. Her 70 year old husband might be collecting Social Security. People with $150k/year pensions often have other investment income.
Yea It's worth the check. Thanks!
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