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My parents have nothing saved for retirement, how can I help?

Posted by Cheryl Costa  October 2, 2008 09:53 AM

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I'm 23 years old and fortunate enough to be gainfully employed with very modest debt. My parents shouldered a lot of my tuition payments, but now I realize they should have been saving for their own retirement.

My father recently lost his job, and is 62 years old. Other than Social Security and his pension plan,they have nothing saved. I was thinking about opening up a retirement account for them.

What do I need to know? Should I set it up in their names? What's the best place to put the money, knowing that they'll probably be drawing on it in 5-10 years? Could this count as a gift and therefore be a tax deduction for me?

First, I think it is great that you realize (and so obviously appreciate) the sacrifices that your parents made to get you through college. It is unfortunate that it now appears that their own retirement is in jeopardy. However, the good news is that there are several ways you can help them out.

Assuming your Dad had at least $6,000 in earned income this year, he is able to open a traditional or Roth IRA in the amount of $6,000. You could gift him this money and he could use it to open the IRA in his name. (Unfortunately, you won't be able to take a tax deduction for this gift.) Your Mom could also open a traditional or Roth IRA if she has earned income in 2008 of at least $6,000 (I am assuming she is at least 50 years old). If your Mom does not work, she could open a Spousal IRA assuming your Dad earned at least $12,000 this year. There are many factors to consider when deciding between a Roth and a Traditional IRA and it would take many paragraphs to explain all of them. Which option is better for your parents depends on their personal circumstances, but I'd urge you to look closely at a Roth assuming your parents met the income limits ($159,000 to $169,000 for joint filers).

There are a few rules about gifting that you should be aware of. In 2008, anyone can make a gift to anyone else without the need to file a gift tax return if that gift is $12,000 or less. So, you could give your Dad $12,000 and your Mom another $12,000. This gifting "limit" is based on the calendar year so you can gift again in January, 2009. Plus, in 2009, the amount you can gift increases to $13,000. So you can give each of your parents $12,000 this year for a total of $24,000 and $13,000 each in January for a grand total of $50,000.

Another way you could help your parents would be to volunteer to pay any medical expenses they may be incurring. If you pay the amounts owed directly to the hospital or medical provider, the amount paid does not count against your annual gift tax exclusion. Eligible medical expenses would include any medical expense that would be deductible for income tax purposes. It is critical, though, that the payment be made by you and directly to the provider.

As far as how you should invest the money, I really can't say without knowing more about your parent's personal situation and their tolerance for risk. You, however, might want to do some research on target date funds. Fidelity, Vanguard and T Rowe Price all offer target date funds and picking them is pretty easy because you would simply choose the fund that has a "target date" closest to the year your parents expect to retire and/or need to access the money. A fund with a target date of 2010, for example, could be appropriate for people expecting to retire between 2008 and 2012. It is important to note that these funds can lose money, so if you want to to be absolutely sure that you would never lose a penny, these funds are not for you.

This blog is not written or edited by or the Boston Globe.
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Local finance professionals share insights and advice on issues such as budgeting, managing debt, and retirement planning.

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D. Abraham Ringer is a CERTIFIED FINANCIAL PLANNER practitioner and a Financial Adviser with Morgan Stanley Global Wealth Management in Boston. He is registered in MA, NH, NY and several other states to which his articles are directed. For more information please visit
Financial Planning Association™ of Massachusetts has 900 members who specialize in the financial planning process. Many of its members engage in philanthropic pro bono work in their communities, recommend legislation, elevate public awareness, promote financial literacy, and advocate for sound economic and tax policies.
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