Inventing money for Mom

[poe_999]

Here is my story. My mom is 58 and my dad is 59. My parents have managed to save 0 for retirement and they currently rent their home. My dad filed bankruptcy about 2 years ago and currently owes about 6K to student loans. He basically lives paycheck to pay with no savings period and owns nothing of value. He claims he currently does not have the ability to save anything as he is having a hard time getting by without. He is also not in the best health. My mom has never worked. My parents have 4 kids. Out of the 4 of us I am the only one not in a mess financially (mess is an understatment).

Here is my situation. I currently Max out my employers matching for my 401K. (which is 5%). My employer also puts money into a pension account for me (4%). I was thinking of investing $3K a year into a ROTH (currently I’m just putting it into a savings account). This will put me into saving about 17% for retirement. I’m currently 33 and am playing catch up.

Now my father’s plan is to work until he dies and leave the mess to someone else when he goes. My mother’s doesn’t want to deal with the issue nor does she really understand money and how things work.

I tried to buy a life insurance policy for Dad but the rate of return is not worth it, basically equivalent to a savings account. Not to mention the $3k I spent a year would be directly affecting my ability to retire.

I basically need a way to invent money. This is the idea I have. I would fund my father’s 401K so he could get access to his company’s match. His company matches 6% dollar for dollar. $3k a year will be roughly 6% of his salary after taxes. My plan is to have dad give me power of attorney and specify me as the beneficiary of half (my original investment). I would then take my ½ and place it in my IRA (after dad passes). The other half would go towards taking care of mom. In 10 years this should invent roughly 50K for my mom and in the end I would still be able put the 3K (per year) into my retirement savings.

Currently I cannot afford (nor can my siblings) to take care of my parents mess without affecting my ability to retire (and i don't have kids or a spouse to rely on).

Here are my concerns.
-Will my dad be forced to start making withdrawals from his 401K when he gets older?
-How do I prevent my siblings from going after their share of his 401K if mom dies first or at the same time?
-Can I prevent my dad from borrowing or spending his 401K?
-Am I going to get screwed paying taxes twice on the same money?
-My dad lives in Va, does Virgina law allow my dad to leave me ½ of his estate?
-Is it possible (or legal) to periodically transfer funds from Dad’s 401K into my IRA without having to take a tax hit?
-Can i get some type of legal agreement that basically bars my parents from tapping into this account.
-Is this a flat out bad idea?

I called a couple lawyers and they all asked for extremely large retainers?

I’m open for other options/ideas as well? Please discus.

adding new questions:
-How can someone invest 6% into thier 401K (to take advantage of thier company matching) when they can't afford to take the 6% hit to thier paycheck?

-Is it possible to take early withdrawls every year to pay me back? I realize he would probably take a nice tax hit but there would still be allot left after the employer matching. If this was done anually it would limit my risk to 3K.

Creative ideas please.

Michael

 

[Ally]

If you ask me, and I'm coming just from common sense in dealing with relatives who have money problems, I wouldn't put anything directly in his hands with that history. I doubt if you can control what he does with it. He can go change the beneficiary any time I would think. It might be better to just be prepared to save for yourself and figure that you may have to help your mom in later years. It sounds like you are saving alot for your age. You may be able to supplement her social security or pay a bill for her if your dad passes first. And who knows if he will be the first to go?

Maybe others with more financial knowledge can help, but my gut feeling would be to keep your money in your own accounts and be prepared to help your mom later.

 

[Ally]

And who's to say you may not have a child or spouse in the future? You are young to be able plan for every eventuality.

 

[REWahoo]

I basically need a way to invent money.

Come back next April 1 and we'll tell you how to do it.

 

[poe_999]

You may be able to supplement her social security or pay a bill for her if your dad passes first.

This is pretty much going to happen no matter what. The difference is going to be how much will i be shelling out in the future. I'm trying to figure out a way to invent $$$ now, plan ahead, and create less of a financial impact 10 years from now.

And who knows if he will be the first to go?

Dad is about 100 lbs over weight, smokes 2 packs a day for the past 35 years, and has heart problems, and eats horrible. Mom takes much better care of herself.

 

[Bestwifeever]

You'd give your dad the money for the 401(k) and then he'd keep that money and have the 401(k) deducted from his paycheck? How would you know if he stopped the deductions and kept the money you'd give him?

I think your intentions are good but as others have pointed out, chances of success for this plan are slim.

 

[GRambler]

My take on this.
-----------------------------------------
-Will my dad be forced to start making withdrawals from his 401K when he gets older? Yes, but I forget the age.
-How do I prevent my siblings from going after their share of his 401K if mom dies first or at the same time? You can be named secondary beneficiary on the 401 after your mom.
-Can I prevent my dad from borrowing or spending his 401K? Probably not.
-Am I going to get screwed paying taxes twice on the same money? Dunno
-My dad lives in Va, does Virgina law allow my dad to leave me ½ of his estate? Dunno for sure, but probably if he wills that way. 1/2 mom, 1/2 you.
-Is it possible (or legal) to periodically transfer funds from Dad’s 401K into my IRA without having to take a tax hit? Probably not, but I'd check into it.
-Can i get some type of legal agreement that basically bars my parents from tapping into this account. Not sure on that one either.
-Is this a flat out bad idea? IMO, absolutely, but I like your thinking outside the box.

 

[poe_999]

You'd give your dad the money for the 401(k) and then he'd keep that money and have the 401(k) deducted from his paycheck? How would you know if he stopped the deductions and kept the money you'd give him?

I would want some sort of power of attorney or be an agent on his 401K. I would check myself.

 

[SVHoper]

Just a thought - your Dad's employer seems pretty progressive with the match of 401k... Perhaps they offer life insurance... some free some at a discounted rate considering your Dad's risk. I think it is worth getting your Dad to inquire. Then you pay... and become beneficiary (not your Mum)... so you don't have to battle siblings.

 

[samclem]

Any chance of getting your siblings to pitch in on a life insurance policy on Dad? Maybe approach them about the eventual need for everyone to take care of Mom, and the advantages of paying affordable amounts now so the money is available when it is needed. Maybe a cheap term policy to get you through the next 15 years, by which time your own assets might be in better shape to help support Mom.

 

[poe_999]

-Is this a flat out bad idea? IMO, absolutely, but I like your thinking outside the box.

I feel like I do not have enough time, or funding to make any sort of difference with more traditional methods.

 

[poe_999]

Just a thought - your Dad's employer seems pretty progressive with the match of 401k... Perhaps they offer life insurance... some free some at a discounted rate considering your Dad's risk. I think it is worth getting your Dad to inquire. Then you pay... and become beneficiary (not your Mum)... so you don't have to battle siblings.

yes but i believe the cap is 1.5 times his salary. He is already signed up for that.

 

[rescueme]

...my gut feeling would be to keep your money in your own accounts and be prepared to help your mom later.

I agree...

 

[poe_999]

Any chance of getting your siblings to pitch in on a life insurance policy on Dad? Maybe approach them about the eventual need for everyone to take care of Mom, and the advantages of paying affordable amounts now so the money is available when it is needed. Maybe a cheap term policy to get you through the next 15 years, by which time your own assets might be in better shape to help support Mom.

Already talked to the siblings about this. 2 major problems.
1. Siblings can't help (or wont). They are all in thier own fincaial mess.

2. I tried to get life insurance. The insurance companies have said either unisurable, or the amount paid in equals the payout. a 15 year policy would pay out less than what i put into it. I would get a better rate of return with a savings account.

By which time your own assets might be in better shape to help support Mom

i'm assuming my financial responsiblities will increase 3 fold in the next 10-20 as I like the idea of having children.

 

[freebird5825]

I agree...

Ditto
Your intent is honorable, but the concept of funding someone else's 401k is an alligator filled moat.

 

[samclem]

My mom has never worked.

Maybe your Mom will need to explore all her options. The kids are out of the house, Dad isn't saving any money, the amount of time Mom will be able to work is not unlimited, it will be hard enough now--it wont get easier. Obviously, this is sensitive ground, but surely your Mom knows that she and Dad are broke. What does she think is going to happen?

 

[Bestwifeever]

...i'm assuming my financial responsiblities will increase 3 fold in the next 10-20 as I like the idea of having children.

I meant to say earlier I'm sorry you're in this position. Many people here have had to distance themselves from fiscally irresponsible family members--no one will blame you for focusing on your own future instead of your parents.

 

[brewer12345]

Get a REALLY good scanner, a REALLY good printer and some $20 bills...

 

[poe_999]

What does she think is going to happen?

She knows they are broke. I pretty sure she thinks her kids will take care of her or she will get by on SS.

 

[samclem]

She knows they are broke. I pretty sure she thinks her kids will take care of her or she will get by on SS.

Well, if she and your Dad want your help in building a[-] budget,[/-] spending plan (especially to see how things would work out with his/her SS checks and hers alone), then you could help with that and it would put the issue into stark relief. They are both probably wishing the entire thing away. If they don't want your assistance in this regard, then the best you can do is to find a good time to have a frank discussion about the limits of what you can do. This will be a difficult discussion, especially because they may not feel that there's any problem, or that their decisions created the problem. You certainly didn't create this situation.

 

[bubba]

Just my opinion, but I don't think you're idea will work. His 401K will be his and he can go to HR and change anything on it anytime he likes. He can withdraw it all and spend it. I don't think you can be named POA on someone's 401K. If you expect to help your mother, you'd likely be better off just saving every penny you can now and help as much as you can or will when the time comes. Also, if there is any work she can do, you really, really need to encourage her to work.

 

[HFWR]

Here are my concerns.
-Will my dad be forced to start making withdrawals from his 401K when he gets older? Yes, at age 70.5.
-How do I prevent my siblings from going after their share of his 401K if mom dies first or at the same time? 401k does not go through probate. Whoever is listed as the beneficiary gets the money. In Texas, a community property state, the spouse is the beneficiary, unless they agree otherwise ahead of time.
-Can I prevent my dad from borrowing or spending his 401K? No
-Am I going to get screwed paying taxes twice on the same money? Yes
-My dad lives in Va, does Virgina law allow my dad to leave me ½ of his estate? In Texas, the spouse would have to approve this.
-Is it possible (or legal) to periodically transfer funds from Dad’s 401K into my IRA without having to take a tax hit? No
-Can i get some type of legal agreement that basically bars my parents from tapping into this account. No
-Is this a flat out bad idea?


Michael

Answers in red. This advice is worth what you paid for it. Or less...

 

[Texas Proud]

Here are my concerns.
-Will my dad be forced to start making withdrawals from his 401K when he gets older?

Yes... IIRC the year he turns 70.5


-How do I prevent my siblings from going after their share of his 401K if mom dies first or at the same time?

You can not. Sure, you can be put on as beneficiary... but dad can change that at any time. It is against the law to pledge 401(k) assets against any debt.

-Can I prevent my dad from borrowing or spending his 401K?

Nope and Nope

-Am I going to get screwed paying taxes twice on the same money?

Not sure what you mean by this... you are giving your dad money to put into his 401(k)... it has to be taxed money... not IRA money (or you do pay taxes if you take it out of your account)... your dad will be taxed when he takes it out... IF you get it when he dies, you will have to pay tax on it


-My dad lives in Va, does Virgina law allow my dad to leave me ½ of his estate?

Not a Virginia lawyer, but I have never heard of any state preventing someone from leaving their estate to anybody they choose... even a dog or cat... so I woudl say yes, he can leave you 1/2 of his estate... now, just before he dies, he can change his will and you are screwed

-Is it possible (or legal) to periodically transfer funds from Dad’s 401K into my IRA without having to take a tax hit?

NO... it is your dads money, not yours... if he takes it out it has to go into one of HIS accounts for it not to be taxed. YOU can only put it in your IRA if you have not contributed the max for the year.... (think of it as separte money...)

-Can i get some type of legal agreement that basically bars my parents from tapping into this account.

NO...

-Is this a flat out bad idea?

YES


Michael

I only say it is a bad idea because you can not have control of this money... and even if you think you have control, your dad or mom can change that with the stroke of a pen... and if they die without a will... or the beneficiary is changed at the last minute, someone else gets the money...

If you want to 'trust' them to do as you ask... it is a way to get some money saved for them with the match... you CAN have your dad take out a loan for the amount you paid him and have him pay you so you are not out anything... all it costs are the payments... he can renew this loan over and over to keep your total amount invested low.... still capturing the match...

 

[poe_999]

you CAN have your dad take out a loan for the amount you paid him and have him pay you so you are not out anything...

I'm assuming you are refering to a 401K loan? What happens if you don't repay a 401K loan?

 

[sheehs1]

As others have said , I wouldn't do anything if your Dad or Mom owns it.
Have you considered....buying a variable annuity...that you own...with your Mom as the beneficiary and your Dad as the annuitant...such that at his death the money accumulated goes to your Mom. Or...to both of you if that is what you want.

Most of us don't like annuities...but they do have their application. This may be one of them.

I used a variable annuity inside my moms trust....with my Dad as the annuitant, the Trust as the owner.......such that at his death the funds went to moms trust.
to help pay estate taxes.

Now...there are rules...that if your Dad can claim hardship he can ask for the money...but...he doesn't really have to know you are doing this.

The annuities ..will provide X% bump each year...and some investment gains. Granted they have charges...but maybe you can find one with low fees comparitively speaking.