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For parents of young children, the idea of estate planning and retirement savings may be hard to wrap your brain around. However, should something happen to either parent, proper care for your family will take cash? The more planning you can do while you’re healthy and working, the better off your future will be.
We tend to view the world from our own perspective, so thinking about a world where you no longer exist is challenging. That being said, life insurance is critical if you have a spouse or a child.
Investing in a term policy is one of the best ways to make sure that your family is best protected when they are the most vulnerable. These policies tend to be fairly cheap and require a monthly payment withdrawal from an account or a credit card.
Term life insurance policies, like a lot of insurance policies, feature two gambles. For young parents with small kids, the risk of death is generally low. However, should something like a car wreck or other catastrophic event impact your life, a term life insurance policy will pay out more if you die young than it will pay out if you’re lucky enough to die a bit later.
If we stick with the car wreck analogy, we should also consider the risk of disability. Disability insurance may be available at a reduced rate through your employer. If not, consider one of the cost-effective disability insurance policies available for young employees and business owners.
Disability insurance will give you many opportunities. You could use this coverage to support your family while you
- recover from an accident
- get physical therapy to increase your strength
- reduce your stress by reducing a part of your income while you review your options
If you own your house, are a business owner, or have other assets you want to protect for your children, a conversation with a Los Angeles estate law firm, for example. Such a meeting is particularly important for grandparents and older family members who want their assets to benefit those they leave behind.
In addition to discussing your estate planning goals with an attorney, make sure to discuss your plans with your accountant. For example, you may be able to have your attorney set up trusts for the benefit of your grandkids and their education, or you may have a loved one with special needs that you would like to support. The vehicle you store the money in will make a difference in how the monies are dispersed.
If your company offers a 401(k), make sure that you’re putting in enough with every paycheck to gain the full match from your employer. Never turn down a raise. Once your 401(k) is maxed each year, take a look at traditional IRAs and Roth IRAs.
For families in which one spouse only works part-time while caring for kids, a Roth IRA is an excellent choice. While you can put money in a traditional IRA and get the tax benefit as a part-time employee, the contributions can’t be more than the W-2 income. Roth IRAs can be set up for a non-earning spouse and maxed each year regardless of yearly income.
Educational Savings Accounts
Grandparents can also set up educational trusts to help pay for a grandchild’s educational expenses. If you want the child to be able to use those monies for anything they want, consider setting up a grantor trust with no defined parameters.
Not only are these trusts a great way to hedge against the inflation of education, but setting up an educational trust can help the grantor lower their tax burden. Again, discuss all of these options with your attorney and your accountant. If a grandparent can set these up in the later years of their working lives, both the savings tools and the timing could work in the grandparent’s favor.
Waiting until you retire to boost trust savings for your family won’t give you much of a tax break if your income is reduced at all by retirement. You want to get the best break during your highest-earning times. Young families need a lot of coverage, such as a term policy, but that payout will lower the longer you hold the policy.