It seems unlikely that Dad would leave this growing 401K money unmolested. Even if he doesn't withdraw it, once he knows that he can take a loan against it, there will be other "requirements" that he'll want to fund with such a loan. So, the account won't likely survive.
Inventing money for Mom
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It seems unlikely that Dad would leave this growing 401K money unmolested. Even if he doesn't withdraw it, once he knows that he can take a loan against it, there will be other "requirements" that he'll want to fund with such a loan. So, the account won't likely survive.
It doesn't seem like there is any easy answer. My parents planned fairly well, but when my mom got Alzheimers, it took all their money caring for her and so my siblings and I ended up spending quite a bit for my dad's care later. It was at that time, that the true selfish nature of one of my sib's surfaced. It is really difficult being the responsible ones, but ultimately we are proud of what we did. I hope you fund a way to help your mom and that gives you satisfaction. I agree too that it may be good for your mom to work, even if part time.
Sounds like a very difficult situation.
It seems unlikely that you will be able to change the basics of your parents' financial situation by getting involved in the 401k. I would consider spending your energy in finding out what resources are available for seniors in your area. There are senior apartments available where the rent is limited to 30% of their income, so that might be something your parents could do if Dad is not able to work or if Dad dies and Mom can't afford their current situation. I'm not sure what the age restrictions are for that sort of housing, and maybe it varies by location.
But as suggested above, I would put your financial efforts into your own future. Good luck.
It seems unlikely that you will be able to change the basics of your parents' financial situation by getting involved in the 401k. I would consider spending your energy in finding out what resources are available for seniors in your area. There are senior apartments available where the rent is limited to 30% of their income, so that might be something your parents could do if Dad is not able to work or if Dad dies and Mom can't afford their current situation. I'm not sure what the age restrictions are for that sort of housing, and maybe it varies by location.
But as suggested above, I would put your financial efforts into your own future. Good luck.
chinaco
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I understand what you are trying to do and it is admirable....
My Opinion - Don't do it! You cannot save someone from themselves! Worry about your financial future. It is too late! If you need to pitch in in a crisis, then do so. But you are not going to be able to make any major difference. Maintain control of your money. Do gifts along the way... but only if absolutely necessary.
My Opinion - Don't do it! You cannot save someone from themselves! Worry about your financial future. It is too late! If you need to pitch in in a crisis, then do so. But you are not going to be able to make any major difference. Maintain control of your money. Do gifts along the way... but only if absolutely necessary.
Here's some options besides financial. Find the nearest food pantry (usu. at a church), they'll supply 1-2 days (or more) of food for them. In my area, you can visit weekly and you don't need to show proof of any income, all you need to do is register and you qualify. Another option is the housing situation, maybe you want to consider having them live with you or finding a place together? It's a stretch,but the more people in a residence, the cheaper it is. Both of these will reduce their expenses.
Texas Proud
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It becomes 'income'.... but as long as you are working, money is taken out of the paycheck...
Texas Proud
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It might not... but then again you have gotten the $ for $ match of the company as long as he didn't touch it... so he is ahead of the game anyhow...
OrcasIslandBound
Recycles dryer sheets
There are several books out there that talk about sharing money with family members, kids, parents and also friends. These include "The Millionaire Next Door" and "The Road to Financial Independence". Don't pay full price for them. Buy them at a thriftshop or from an Amazon re-seller for about $.25 each. The advice they give you is timeless and will open your eyes about dealing in money matters with relatives. I'm curious about your response when you read them. Can you check back with us in this forum?
- Stephen
- Stephen
It seems the consensus is this is a very bad idea.
The idea is to basically give my father a loan (with interest say 8%) so he can take advantage of his company’s 401K matching, which is basically inventing money from nothing, which will be repaid upon death. Worse case scenario is the loan is never repaid and I’m out my original investment (30K ish). Best case I invented roughly 50K (due to the employer matching and interest) and i see my orginal investment back plus interest.
Both of these scenarios guarantee I will loose money.
The idea that seems to be popular is to grow my own wealth (lets say I invest my 30K now and get 8% return). And use that money to help mom out with in the future. The problem with this solution is I’m still out the 30K and the rate of return is 8%, when investing in pop's 401K would return roughly 116% (because of the 401K matching).
The idea is to ‘invent money’ and not loose the original investment or the interest on that investment. Basically the 100% matching is a better return that I can ever hope to expect in any type of investment strategy. Problem being its completely controlled by someone else.
This is how I am seeing this advice. Don't put 30K into the 401K and double it as you will loose your investment (lets say 50% chance to loose it). Just give them the 30K later when they need it (in which case i am 100% sure to loose).
I do not forsee myself being wealthy enough to support mom in the time period given without sacraficing my ability to handle my own obligations unless I can come up with some way of inventing money.
I'm open for other suggestions. 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. Say this was done anually it would limit my risk 3K.
Creative ideas please.
The idea is to basically give my father a loan (with interest say 8%) so he can take advantage of his company’s 401K matching, which is basically inventing money from nothing, which will be repaid upon death. Worse case scenario is the loan is never repaid and I’m out my original investment (30K ish). Best case I invented roughly 50K (due to the employer matching and interest) and i see my orginal investment back plus interest.
Both of these scenarios guarantee I will loose money.
The idea that seems to be popular is to grow my own wealth (lets say I invest my 30K now and get 8% return). And use that money to help mom out with in the future. The problem with this solution is I’m still out the 30K and the rate of return is 8%, when investing in pop's 401K would return roughly 116% (because of the 401K matching).
The idea is to ‘invent money’ and not loose the original investment or the interest on that investment. Basically the 100% matching is a better return that I can ever hope to expect in any type of investment strategy. Problem being its completely controlled by someone else.
This is how I am seeing this advice. Don't put 30K into the 401K and double it as you will loose your investment (lets say 50% chance to loose it). Just give them the 30K later when they need it (in which case i am 100% sure to loose).
I do not forsee myself being wealthy enough to support mom in the time period given without sacraficing my ability to handle my own obligations unless I can come up with some way of inventing money.
I'm open for other suggestions. 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. Say this was done anually it would limit my risk 3K.
Creative ideas please.
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Very generous, and they are lukc to have a caring son, but a bad idea.
He could change POA at anytime without your knowledge. Assuming your parents are married, if he dies, your mom would most likely inherit. If she dies without a will, most likely anything left gets split among kids. Siblings could also object to any arrangements if she dies. wiht or withour a will.
If one or the other gets ill, their funds may get used up for long term care. A 401k cannot be transferred from his account to yours. He would have to take the distribution pay the taxes, and then do what he likes, including rolling it over to HIS IRA.
I would suggest you check around and see if you can buy ANY term insurance on them if possible. But bottom line- you cannot fix this, and should not jeopardize your future doing so. You have no idea what your futrue employment or needs will be.
He could change POA at anytime without your knowledge. Assuming your parents are married, if he dies, your mom would most likely inherit. If she dies without a will, most likely anything left gets split among kids. Siblings could also object to any arrangements if she dies. wiht or withour a will.
If one or the other gets ill, their funds may get used up for long term care. A 401k cannot be transferred from his account to yours. He would have to take the distribution pay the taxes, and then do what he likes, including rolling it over to HIS IRA.
I would suggest you check around and see if you can buy ANY term insurance on them if possible. But bottom line- you cannot fix this, and should not jeopardize your future doing so. You have no idea what your futrue employment or needs will be.
You have certainly opened up alot with all the information provided. Lots of problems and probably not many solutions. I am personally very fond of real estate. Instead of them paying rent, why not jointly purchase a house. Did this once for my inlaws. DW and I purchased a house and leased it to them. They were really comfortable with the situation. In this day of low prices, it would probably be cheaper than renting and you could have the upper hand on this financial arrangement. What ever you would have to contribute to make this work would eventually be money in your pocket (investment). Your mom would always have a place and you would be in control of that situation. With their financial woes you mentioned, you would probably have to buy the house as I doubt their finannces would secure a loan. Food for thought. Good luck.
I have thought about this option. The problem is i can not afford the house payment and i would be the only source of income if my father passed. This would be an option if there was enough time for inflation, paying the principal down, and salary increases and to make it affordable for me.
My parents currently get a great deal on rent. The mortgage payment on the house they live in would be 20% higher than what they currently pay in rent (its been looked into). I feel this would put me in the position where i would have to sell the house out from under my mother if my father where to pass.
Getting a large loan to help out my family in a failing situation is really exposing me to too much risk.
Michael
traineeinvestor
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You are faced with a difficut situation and I think your parents are fortunate that at least one of their children is willing and able to assist them.
Whatever you plan to do, I'd proceed on the basis that whatever money you put on the table is at risk and there is a good chance that you will not see it again. As others have said, however much you want to help your parents, placing your (and any future spouse/children) own financial position at risk is a bad move.
You mention that:
1. your siblings are unable to help. Have you considered at least trying to get your siblings to (individually or collectively/wholly or partially) match your contributions. If you put $X into your Dad's 401K per month and they chip in a few dollars as well then your potential downside/cost is reduced? If they say "no" at least you tried to put a bit of pressure on them to help.
2. they are renting - is there any possibility of downsizing to a lower cost home?
3. your Mum does not/cannot work - does she have any hobbies or interests that could be monetised? If all else fails, setting up a blog where she talks about them has at least some chance (however unlikely) of generating a few dollars.
Whatever you plan to do, I'd proceed on the basis that whatever money you put on the table is at risk and there is a good chance that you will not see it again. As others have said, however much you want to help your parents, placing your (and any future spouse/children) own financial position at risk is a bad move.
You mention that:
1. your siblings are unable to help. Have you considered at least trying to get your siblings to (individually or collectively/wholly or partially) match your contributions. If you put $X into your Dad's 401K per month and they chip in a few dollars as well then your potential downside/cost is reduced? If they say "no" at least you tried to put a bit of pressure on them to help.
2. they are renting - is there any possibility of downsizing to a lower cost home?
3. your Mum does not/cannot work - does she have any hobbies or interests that could be monetised? If all else fails, setting up a blog where she talks about them has at least some chance (however unlikely) of generating a few dollars.
I have already had a talk with them. Currently it is not possible, nor does it look like it will be in the next few years.
They have rented the same place for about 20 years. The landlord hasn't kept up with raising the rent on them. They are getting a very very good deal on rent. Could they down size to save cash, yes, but they would have to down size to something like a trailer park.
Yes, she is an artist but has not had any luck with sales.
Idea 1) Stop calling it "creating money"/"inventing money" etc. You're just trying to help your dad get the 401K match from his company and protect yourself.
Idea 2) Simplify this thing and do it year-to-year to reduce your exposure, reduce the paperwork, and reduce risk at his death for the "deal" to go wrong. "Dad, are you getting the free money from your company in your 401K? Would it help if I gave you loan?" Then, the deal with him is that the first year after he gets the company match, he takes out everything--he cleans out the 401K. He'll pay penalties and taxes--so what? He wouldn't have anything without your help, and he shouldn't mind paying taxes on free money. Anyway, if he's 59 I don't think he'd have to pay any penalties, just taxes. (Check all of this--the IRS rules and what his company 401K folks will allow).
Input (example):
$10K loaned from you
$10K match from his company
Output ($20K):
$3 K: covers taxes
$7K: Reimbursement to you for loan. He will still owe you $3k due in one year.
$10K: Back to Dad. You and he keep the money in a joint ("AND," not "OR" signatures needed) account, it gets transferred back to his employer every month to pay for his 401K contribution (if they must take it from his paycheck, then work some kind of "trust but verify" arrangement whereby it goes to him to reimburse him for the withheld money). If they'll take it as a lump sum, that's easier still.
After that, everything is on autopilot. At the end of year 2 he pays you back the $3K (plus interest if you want), and he just withdraws a little over 1/2 of the money in his 401K. He pays taxes on the withdrawal and uses the rest to "pay himself" every month to make up for the the 401K contribution he is making. He'll get the match. If he's happy using the same joint account you used for year one, then that's great and he won't have an opportunity to blow the money. If he can give it to his employer as a single lump sum, better yet. If he lacks the discipline to do this and blows the money, you repeat the actions from year one--give him a loan and get most of your money back right away.
None of this is optimum: He'll be paying taxes he shouldn't need to pay, and a smaller amount of money will be growing tax-deferred in his 401K. But it may be the best way to get the company money without creating a legal or paperwork nightmare or deep risk for you.
Also: If they are married, your Mom should have a spousal IRA. It can reduce their taxes. More importantly, it will be money in her name that she controls, has some protection from creditors (I think--check this) and which he can't access. She doesn't need income of her own to have a spousal IRA. If she DID get a job, she could put a lot of money into an IRA, or her own 401K. Depending on her/their income she could possibly get "free money" via the Savers Credit, etc.
LOL!
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I don't see what the problem is. Your mom has got to be used to living cheaply already. Life insurance proceeds should get her to SS benefits age. Then she can live off of SS.
This The millionaire’s dilemma | Vanguard Blog says that
This The millionaire’s dilemma | Vanguard Blog says that
So she fits in the 12%. Not a big deal. She will want to make some good friends now who will be her roommates in the future.
Unless your mother is a complete invalid it IS possible for her to work. At 33 it might seem that 58 is old, but it isn't. Raising kids and running a household develops skills. Don't shortchange that. She might get minimum wage, but so what. She's been a part of this fiasco.
TromboneAl
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Did you mean "invest" and not "invent?"
If this will relieve your guilt, go for it. If not, don't waste your money and get on with your life. Your priority is you which is nothing more than your parents are doing for themselves.
