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America's aging population is moving steadily toward retirement, and many baby boomers are already in their retirement years. This means more adults across the country are facing the reality of having parents who may need help financially in their senior years. When this difficult topic comes up, consider a few of these key dos and don'ts that can help you make smart money decisions for your and your parents' future.
DON'T
Proceed without your spouse's support
Don't do anything without first having a discussion with your spouse about how or whether you should help financially support retired parents. Proceeding without consultation could result in overdrawn bank accounts and an unhappy spouse. It's important to consider whether your in-laws may need help at some point, as well. Discussing these issues with your spouse will help you come up with a financial plan that addresses all parties involved.
Overextend your own finances
Before you try to help your parents, make sure your own finances are stable and that your debt is under control. The last thing you'd want is to deplete your savings to help your parents buy a car, just to have your own break down a few months later with no financial means to repair or replace it. It would also be financially unwise to go into debt to support your parents, as such a decision could leave you with mounting interest on credit card bills and a damaged credit score.
Forget tax implications
If you end up taking on at least half of the financial obligations for an aging parent, you can claim them as a dependent on tax forms.
"Even if your parent doesn't meet income requirements to qualify as a dependent, you may be able to deduct medical expenses that exceed 10 percent of your adjusted gross income if you’re under age 65," Susan Johnson Taylor wrote for U.S. News and World Report.
Another factor to keep in mind is that the IRS' annual gift exclusion is $14,000 per person or $28,000 per couple. If your financial contributions exceed that, you parents could end up owing gift taxes. You can avoid this by paying your parents' bills directly, rather than writing them a check.
DO
Plan ahead
If you're aware your parents or in-laws might have financial trouble at some point and you'd like to be able to help out, plan head and start saving now. Sit down with your spouse and decide how much you can set aside from each paycheck. Deposit it in a savings account that you both understand is only to be used in case your parents have a financial emergency.
Speak with your siblings
If you have siblings who could potentially contribute financially to your parents' future, discuss with them how you can share the cost of that care. For instance, Washington, D.C., financial planner Rachel Podnos told Time Money that one of her clients discussed with her the benefits of purchasing long-term care insurance policies on his parents' behalf and then splitting the cost of the premium with his siblings.
Help your parents assess their assets and insurance coverage
Do your parents have sources of revenue they haven't yet considered? Sit down with them and discuss whether they have liquid assets that aren't being fully utilized or insurance coverage they haven't yet taken advantage of. Help them consider all their options, including renting out part of their home, selling an extra car or recreational vehicle, cashing out life insurance or applying for disability coverage.
Suggest a reverse mortgage
Another asset to consider is the equity stored in your parents' home. If your parents are 62 or older, own their home and have paid off at least half of its value, they might be eligible to apply for a reverse mortgage.
FSI Mortgage explains that funds from reverse mortgages are FHA-insured, making them a safe source of revenue, and your parents can choose whether they receive the money as part of "a lump sum, a line of credit that (they) can draw on when needed, an automatic monthly income, or a combination of these." They could also use the money to pay off their existing mortgage, relieving them of the burden of paying a house payment each month.
To find out more about reverse mortgages, contact FSI Mortgage or visit it online.
