A FINANCE expert helped a loving daughter come up with a way to save money for her parents’ retirement that will also make her money.
Clark Howard taught people how to save more and spend less more than 30 years ago.
On his YouTube channel, he recently helped a viewer get out of a sticky situation regarding her parents.
In a letter, the viewer explained that her parents “are not very good with money” and have nothing saved for retirement.
Her father is 53 and her mother is 63, and they both have several health problems.
“My question is whether I should include them in my financial plans. Should I plan to save for retirement? [fund] for them?” she wrote in the letter.
Clark admitted it was “late in the game” for parents to build up savings.
“Many adult children are discovering that as their parents age, they have the twin problems you described: no money saved for the future and medical problems,” Clark said in a statement. video.
He suggested creating Roth IRAs in their names and contributing up to $7,500, which would grow tax-free over the years.
It would be a non-taxable transaction for the daughter as well, which would help her finances
Clark noted that she should only make this move if she could afford it and if she was sure her parents wouldn’t waste the money before he had time to grow up.
“It’s a generational wealth transfer in reverse,” he said.
KNOW THE LANGUAGE
There are several options when it comes to saving for retirement and it’s important to know the differences.
An individual retirement account, or IRA, has strict annual contribution limits.
The most a person under age 50 can contribute per year is $6,000, while the maximum is $19,500 for a 401k.
However, because the 401k is offered by employers, many companies agree to match up to 5% of each paycheck and invest it in the account.
Where to save retirement money
There are several different places you can put the money you have saved for retirement. Each has different tax advantages, but not all are available to everyone.
401(k) – an employer-sponsored retirement account. Contributions are made pre-tax and many employers will match a certain percentage of your contributions. Taxes are paid when funds are withdrawn in retirement.
Roth IRA – an individual retirement account. Contributions are made after taxes, but withdrawals in retirement are not taxed.
TSP (Thrift Savings Plan) – a retirement savings and investment plan for federal employees and members of the uniformed services. They work similarly to 401(k)s, but may have more limited investment options.
Pension – an employee benefit that obliges the employer to make payments to the employee upon retirement. Pensions are becoming increasingly rare.
Logan Murray, financial planner and tax preparer at Pocket Project, said IRAs have an advantage over 401Ks in terms of fees.
“O [401k] the plan may have very limited or very expensive options that would make the IRA more attractive,” he said.
“401Ks typically charge fees for using the account, while IRAs do not.”
For example, you can only choose from 20 investments under an employer plan.
However, Michael Turner, risk strategist at Charlotte Wealth Group, said a 401K with employer match is basically a way to get free money.
“If there is employer matching involved, put everything that is matched into the 401k,” Turner told The US Sun.
Additionally, if someone leaves their employer, they can roll the account over to an IRA.
A 52-year-old man was worried about retiring despite having saved more than $1 million and sought advice from a fellow expert.
Another retiree learned how to get out of the job market, but an expert warned his savings might not last due to the rate of return.
This story originally appeared on The-sun.com read the full story
