Why clients may want to contribute to their child’s retirement

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Why clients may want to contribute to their child’s retirement
Clients can teach good financial planning to their child or grandchild who recently graduated from college by helping jumpstart his or her retirement nest egg, according to an article from The Wall Street Journal. "Recent graduates tend to be in low tax brackets in their early working years–when it pays for them to save as much as they can in a Roth IRA or Roth 401(k)," writes an expert with socialsecuritysolutions.com. "And a matching contribution from a parent or grandparent could make a huge difference. In some instances, the payoff could be greater than starting out with a tax-advantaged IRA or 401(k)."

Everything clients need to know about 401(k)'s, IRAs and other retirement accounts
Retirement savers should make the most of their 401(k) plans and IRAs, which are savings vehicles with great tax advantages, according to this article on CNBC. IRA investors should also consider funding a Roth IRA, which, unlike a traditional IRA, is funded with after-tax dollars and provides tax-exempt income in retirement. "The differences have nothing to do with the risk that you take or the investment choices you have. The only difference between a traditional and Roth is from the tax perspective. You get to pick when you pay your taxes," says an expert.

Do Americans participate enough in retirement plans?
An analysis of data from the Statistics of Income Division of the IRS shows that the active participation in retirement plans increases with age among workers aged 26 and 64, according to this article on from Forbes. The results also show that 73% of workers with at least $20,000 in adjusted gross income participate directly, or indirectly through a spouse, in retirement plans. Moreover, 25% of people whose AGIs are below $20,000 contributing to a plan. The statistics also show that most of the participants retire with employer plan resources.

This retirement cost is inevitable — and can be insanely expensive
Long-term care is very likely in retirement, and clients are advised to prepare for the economic cost of this need, according to this article on MarketWatch. Government data suggests that seniors who reach 65 today face a 70% chance of needing a long-term care service. Moreover, men would need long-term care for 2.2 years, while women would need it for 3.7 years. “This is a very large group of people who will be leaving the earning phase of their lifetime and going into retirement, and will probably be facing potential health issues,” says an expert with Merrill Lynch.

How tax reform could sting retirement income
Middle-income workers stand to lose from proposed tax changes that would require 401(k) participants to convert their traditional assets into a Roth to accelerate tax revenue, according to this article on CBS Moneywatch. This could also mean higher taxes for these middle-income workers. Another consideration is that both traditional 401(k) and Roth 401(k) accounts are subject to required minimum distribution rules, which means that workers will have to take mandatory withdrawals even if they have no need for the money.

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Retirement readiness Roth 401(k) 401(k) IRAs Retirement income Long-term care LTC Resource Center