She should consider delaying her social security benefits at retirement age for as long as possible as each month they are delayed increases the benefit amount. In addition, you take on a lot of financial risk for medical emergencies with a HDHP. For a lot of people, this is not the best option as changing health plans may require a change in doctor d/t provider choice, she may have regular medical needs or expensive medications, etc. You can then invest the HSA into ETFs, index funds, etc.
If your mother is in good health and does not have regular or high medical expenses each year, consider a High Deductible Health Plan and maxing contributions to an HSA to save for future medical expenses.
but only if the 401K options offered are good low fee index funds. Money is fungible, so one plausible strategy to avoid capital gains taxes would be to to max the 401K contribution for a few years (currently $19.5K) and live off savings. Retirees with a shorter investing horizon need to build up their retirement savings with contributions rather than compounding returns. Preferably more than that if she can partially live off of her savings. Since your mother is starting to save for retirement relatively late, it would help her a lot if she made a goal of saving at least 10-20% of her income for retirement through a 401K. Traditional retirement planning typically relies on time in market for compounding returns. While a 401K match is ideal because it doubles your contribution, contributing to a 401K is similar to contributing to a traditional IRA in that it reduces taxable income the main difference is that it's easy to set up a habit of saving for retirement through paycheck deductions and it reduces your taxable income immediately rather than having to wait until filing your taxes to receive the tax deduction as a refund. A quick note that she can make catch up contributions to a 401K starting at age 55. She's still 15-20 years from retirement, so even a conservatively invested target date fund still has a fairly high equities position. The expense ratio of a Target Date Fund isn't that much more than an index ETF or mutual fund, I personally think it's worth paying a few extra dollars a year to not worry about rebalancing or managing a glide path for a family member, especially at such a relatively low amount of retirement savings.ĭepending on how risk averse she is, I would personally start with either a 90-10 equity bond allocation or a 80-20 equity bond allocation.
#Cashville stomp free#
If you're planning on managing her retirement accounts on her behalf, feel free to go with a three fund portfolio, otherwise I would go with a Target Date Fund to automatically manage her glide path. The IRS provides a tax credit for low to middle income tax payers that save for retirement, but it is non-refundable, so she must have a tax liability (aka owe the IRS money) when she files taxes to be able to use it.
An traditional IRA would allow her to reduce her taxable income for 20 tax years respectively, but I would guess that her income during retirement will be less than that she's making now. Given that her tax liability is already likely quite low, a Roth IRA is probably the best option since she's already paid taxes on her savings so the tax cost is already "sunk". I am very open to any information you all could provide and would like to do the best I can for my mother.Īgreed, $6K for 2020 IRA and $6K for 2021 IRA is a great idea. So far, I think the best bet will be safe ETFs or index funds such as VOO or VTI. I would greatly appreciate any input on what accounts I could consider opening for her, possibly where would be best to open them, and as for the ROTH IRA, what investments might be best to consider. I believe a HSA account may be viable but I think I'd have to look into the details of her insurance plan for her. I definitely would like to open a ROTH IRA account at Fidelity for her, but given that contributions max out at $6,000, I'd like to look into any other accounts I could possibly open for her. She's never learned about IRAs or 401Ks before so I've been doing my best to learn for her and help set her up.įor context, she is a naturalized citizen working and residing in NYC.ĭue to the job she has, 401Ks, as appealing as they are, seem to be out of the question as there definitely won't be any employer-matched contributions. As a result, she's managed to save almost $60k in cash but as she gets older, she's been starting to think more and more about retirement and how that would play out. My mother is in her late 40s and has been working a minimum wage job for more than a decade and done her very best to save every penny.