Monday, April 14, 2008

I don't want to be my parents' financial planner.

I did my parents' federal taxes this weekend. I offered, and my mom accepted since she hates doing them. They fall into the super simple married filing jointly, two dependents, standard deduction, 1040A category so it was reasonably quick and easy even though my mother made me do them two different ways to determine how much they'd save if she contributes $5,000 to a traditional IRA.

Last year, she had completed her first full year at her second part-time job and hadn't set up withholding correctly so my parents were going to owe a bit when they filed her taxes unless she set up a traditional IRA and took a deduction for that. So, in late March of last year, she asked me to research investment options for her. I prepared a full slate of options for her, showed her what to look for when comparing the plan her insurance agent boss tried to sell her, and made a recommendation. She hemmed and hawed right up to the deadline and then decided to go along with my suggestion and invested in the Vanguard Target 2015 fund even though she was anxious about having any exposure to the stock market whatsoever. (My dad's 401(k) is entirely in something with guaranteed principal and meager interest rates.)

She spent the past year watching her balance go up and down as the stock market did its thing and fretted quite a lot. My mom doesn't think of this as a small fraction of a larger retirement portfolio, but as her money, money she doesn't want to lose. She has considered getting out of the fund and moving her IRA to an FDIC insured account at the bank, which probably isn't the best move for someone in her mid-fifties.

A couple of months ago, I asked her whether she planned to contribute to an IRA for 2007. Her answer was an unequivocal no, even when I suggested she could put this year's contribution in a cd if market volatility made her that uncomfortable. Then, of course, with two days before the deadline, she changed her mind and asked for guidance on where to put her money. My dad decided to jump on the bandwagon and fund a Roth for himself, something my mother has been urging him to do for months, even though she insists on investing in a traditional IRA herself. My dad has even less risk tolerance than my mother so he'll probably leave the money in a bank account for the next couple of decades, but he might as well avoid paying taxes on the interest.

I don't have time to hunt for the best rates right now. At this point, the best option seems to be an IRA of 30 day certificates of deposit that my bank offers. They can probably get better rates elsewhere, but the 30 day c.d. would give my folks the option to move their money in a month without penalty after they/I have time to do more research.

I'm not thrilled about being asked for investment advice. Based on the questions my mother asks, I do know a lot more about the rules for IRAs than she does and more about where to go for answers when I don't know myself so I guess it's understandable, but I worry that I'll end up talking her into things she isn't comfortable with, like the Vanguard target date fund, and she'll be upset with me if things turn out badly. I am not an expert.

4 comments:

plonkee said...

I've had this problem in reverse. Trying to get me to manage their money to beat the market.

It sucks that we know what to do, and can do it ourselves, but we can't educate our nearest and dearest.

A said...

At least your parents ask for your advice. One of my brother's believes vanguards the devil and that his 1.80% expense ratio on his mutual fund is worth it despite the fund not failing to be at the market average for most years.

I've tried the pure money standpoint and statistics for him but it doesn't work. We've already had a round of battles about my possible contributions to the child they'll have in 8 month's college funds.

I want to index it in a very low ratio total market fund, he doesn't want to. I've thought about setting up a trust that I control but that may cause some drama.

Mrs. Micah said...

I wouldn't want to be either. Fortunately, they haven't asked. It really frustrates me when people don't make even semi-reasonable decisions about money. I could suggest index funds and target ones if they don't want to worry about balancing. But I don't want to be in the position of having to convince people to be financially smart.

E.C. said...

A-
Have you considered opening a 529 plan with your niece or nephew as beneficiary, investing in something that suits you, and just not telling your brother about it for a few years? Would that create family complications as well?