Your Financial Future: Assistance to Loved Ones
Submitted by Alexander Consulting Group, LLC on December 30th, 2021For the past several months, I have been blogging about Financial Wellness and the six verticals I believe are integral to planning your financial future and reaching financial wellness:
2. Estate Planning
5. Cash Flow and Budget
6. Assistance to Loved Ones
So far, I have covered investment, retirement, insurance, cash flow and budget, and estate planning in previous blogs. This month I am going to focus on some basic considerations for planning Assistance to Loved Ones.
Gifting
Gifting is transfer of a specific amount of money that you wish to gift to a loved one while you are alive rather than waiting until after your death. The IRS specifies amounts that can be gifted annually without tax.
Individuals with sizeable estates may consider gifting in strategic estate planning. A professional can help you determine if this is a strategy that will work for you and how to best utilize it.
College Planning
Funding college for your dependents may have tax advantages depending on how it is structured. Determining what type of savings plan, distribution schedule, and whether or not trusts are involved can all have different implications.
It is best to seek financial advice based on your unique financial situation and future goals to determine what options will work best for you.
529 College Savings Plans
A 529 college savings plan is sponsored by your state and allows you to save money for a beneficiary to pay for education expenses. Withdrawals can be made tax-free covering most college expenses. There are both savings and prepaid tuition plans under the program.
There are Federal and state tax benefits along with no income restrictions. Many parents choose 529 plans due to their flexibility. A financial professional can help determine if a 529 college savings plan is the best option for your financial situation.
Elderly Care
Elderly care is becoming more and more of a household conversation as the majority of individuals need some type of care assistance when they are older. People are living longer and costs for medical support are higher. Many may not have the retirement savings to support many years of their own elderly care.
Often, the burden of caring for aging parents falls to their children who have their own families and dependents to support. This is further complicated when a family is supporting their children in college while trying to care for their elderly parents or other family members as well. Both of these scenarios tremendously impact our ability to save for our own retirement.
Good planning with professional financial guidance can help remove or lessen the burden of caregiving and caregiving costs for you.
Roth IRAs for Children
A Roth IRA can be opened by a parent on behalf of their child and the child can contribute any earned income. The money can be withdrawn tax-free when they reach retirement. There are no age limits for children to contribute to the account so long as they have earned income.
The account operates the same as any other Roth IRA, other than it starts earning at a much earlier income-earning age rather than waiting until after college to set it up.
A finance professional can help walk you through the benefits of opening Roth IRAs for your children.
UGMA/UTMA
Uniform Gift to Minors/Uniform Transfer to Minors Act allows parents to save money and invest keeping full control until the child is an adult. Money contributed to the account is exempted from paying a gift tax up to $15,000 per year (2021 limit).
When the child beneficiary of the account reaches a certain adult age, everything in the account passes to them. The age is determined by your state and is usually between 18 and 25 years old. This type of investment account officially belongs to your child and the spending rules are fairly flexible.
A financial professional can help determine if this is a strategy that will work with your future financial goals.
Establishing Trusts
Legal trusts can be established for a variety of reasons, but have the same basic factors to consider. You will have to decide the type of trust, what assets are covered, who the trustee and beneficiaries are, and any parameters for the trust.
A trust may be used for minor children in the event of the death of both parents so that the finances will be managed in the way that you determined would be best to care for your children. The trustee may or may not be the guardian for the children.
Consulting with a legal professional can help determine what type of trust can be created to provide assistance to your loved ones when needed.
If you’d like to consult with an individual financial planner, please contact me. Alexander Consulting’s philosophy is to encourage people to plan for lifelong security: financial, health, and social. We take a highly individualized and zealously researched approach to financial planning so that our clients are fully prepared for all of life’s challenges.
This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. For information about specific insurance needs or situations, contact your insurance agent. This article is intended to assist in educating you about insurance generally and not to provide personal service. They may not take into account your personal characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type of insurance that would be right for you. In addition, state insurance laws and insurance underwriting rules may affect available coverage and its costs. Guarantees are based on the claims paying ability of the issuing company. If you need more information or would like personal advice you should consult an insurance professional. You may also visit your state’s insurance department for more information.