Author Topic: Will my father-in-law find out about mother-in-law's Roth?  (Read 2667 times)

Panda Bunny Bird

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Will my father-in-law find out about mother-in-law's Roth?
« on: December 15, 2013, 05:37:07 PM »
Hello all!

I'm a 27-year-old recent grad and new convert to Mustachianism. My partner and I are currently in the process of straightening out our finances and making plans for the future.  One major part of these plans is to be able to offer a home to his parents when they retire in 2 to 3 years - they are immigrants from Latin America with working-class type jobs, limited education, and zero retirement savings.  We figure that with no rent to pay, Social Security and Medicare should enable them to live in reasonable comfort. They can pay us back by helping us with the kids we hope to have. Both DH and I are very satisfied with this plan.

The parents are in their early sixties. The fact that they are broke is partly due to the sacrifices they made to bring their children to the US and get them educated (all three kids graduated from college and have decent jobs), partly due to the fact that are low-wage workers in a HCOL city, and partly because my FIL tends to gamble away any extra money they do happen to acquire.

MIL, to mitigate her husband's irresponsibility, periodically deposits small amounts of money in DH's bank account, asking him to keep it for her and not tell his father. She now has about 2000 dollars in savings parked with us.

While DH and I are aware that secrecy between partners about money is far from ideal, it seems very unlikely either that FIL will change his ways or that MIL will divorce him. I certainly wouldn't put up with his behavior but, well, she's from a different generation and and a very different culture, and I think she is a pretty awesome person on the whole - doing the best she knows how in a challenging situation. In addition, FIL is not in good health and really can't take care of himself at this point. He's got his issues, but nobody wants to see him suffer more than necessary as he grows increasingly old and sick.

So, as I'm learning more about financial planning, it occurs to me that it would be great if we could put MIL's money in a Roth IRA - invested conservatively, it could still be a nice supplement to her SS income in 10 years or so, or the principal could be used to cover any big medical expenses that come up. And I guess I also hope that getting her started with investing will help her be more proactive and empowered about money management in general.

DH spoke to her today about the idea of opening a Roth but she is hesitant because she doesn't want her husband to know that she has any savings. Her fear is that if he does find out, he'll nag her till she gives in and lets him spend it. (He is often an asshole, but we have no reason to think him physically abusive.)

My understanding however is that, as long as tells Vanguard to mail correspondence to OUR address, rather than her own, there's no reason he should find out about the account. I checked the IRS web site and it confirmed that you don't have to declare the existence of a Roth IRA when you do your taxes - as long as you don't want to claim the Saver's Credit.

I would love to know if anyone has definitive information on this subject, and also if anyone has any other suggestions about how we can help them prepare for retirement at this point. Note: we don't have much of a stash yet ourselves (face punch!) although DH has good income and I hopefully will soon as well.

(I know there are a lot of "broke, dysfunctional family members" threads on this forum and I think I've read all of them. Many thanks to all who have shared their stories.)

Obviously if she declines to open a Roth we could open a taxable investment account - in DH's name - with her money. But the she would lose out on the age-related tax benefit, as well as the potential personal-growth benefit that comes with being in control of one's own financial life.



Fuyu

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Re: Will my father-in-law find out about mother-in-law's Roth?
« Reply #1 on: December 15, 2013, 07:12:58 PM »
I'm not sure if this would be helpful... I use Sharebuilder for my Roth IRA and I picked online statements and they've never mailed me anything since I've open it two years ago, not even an advertisement. It would be an additional 6.95 transaction each time she sells and buys stock, but they have DRIP and offer vanguard funds available to buy so if she's going to buy and hold it doesn't seem that much more expensive, plus they usually offer a $50 to $100 bonus when opening an account.

LRS

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Re: Will my father-in-law find out about mother-in-law's Roth?
« Reply #2 on: December 15, 2013, 08:38:09 PM »
While I think this is a neat idea and shows that you have a healthy, proactive thought process about putting dollars to work, I have some reservations about whether the particular situation you're describing is well-suited for a Roth. The main variables I'm looking at are the retirement horizon (which you say is in a mere 2-3 years), the amount of money involved (which right now is $2k and doesn't seem to be growing much faster than that), and the potential of needing to dip into principal (highish, given your in-laws' age and your father-in-law's medical situation).

I suspect it will be more important for that money to be liquid and quickly available to pay for life's little emergencies - things like car troubles or unexpected medical bills - than for it to be invested for relatively modest returns. Especially with your father-in-law in poor health, it might be prudent to keep that money at the ready to cushion the blow of any bad medical news.

Consider planning for emergencies before investing.

That said, if your mother-in-law is able to accumulate a solid base of emergency savings and the money continues to roll in, and the combination of social security, medicare, and you your husband are able to take care of most of your in-laws' living expenses, a Roth might be a good idea.

I sometimes get annoying paper mail from Vanguard, even though I've tried my best to find and check every "just email me, don't send me any of your damn paper" box on their website. But I feel like you should be able to get that stuff sent to an address where it won't raise your father-in-law's suspicions. One pitfall I see is that, if you're planning on having them move in with you in a couple of years, and you're getting Roth-related snail mail to your address, he might go out to get the mail one morning and be flipping through the mail and find it.

The deceptive element of this plan isn't ideal, but I understand that it may be best. Consider discussing with your mother-in-law how your father-in-law might react if he found out, and where they would go from there. I'm sure your family has already thought about other ways, but I think it's worth making an extra effort to try to find a solution that allows for honesty. I don't mean to preach, but I've found that seeds of dishonesty, even when planted with good intentions, often result in a harvest of great misery.

As an aside, I want to say that I strongly approve of your plan to live together as an extended family after your parents retire. I think it's a wonderful way to keep your family strong and close, to repay the incredible sacrifices your in-laws made to give your husband a shot at better opportunities, to enjoy the amazing richness of life that comes from having three generations learning and growing together in the same household, and to economize on housing and child care.

Good luck!

AustinKat

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Re: Will my father-in-law find out about mother-in-law's Roth?
« Reply #3 on: December 15, 2013, 08:41:16 PM »
I agree with LRS about the time-horizon concern. It might be better for your MIL to keep that money liquid in case of emergency. Another thing to consider--are you/they in a community-property state? I'm not sure if an IRA would be affected by that.

bogart

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Re: Will my father-in-law find out about mother-in-law's Roth?
« Reply #4 on: December 15, 2013, 08:43:59 PM »
I would guess there's a huge emotional/psychological difference (for many people, and possibly particularly for people in situations like your MIL's) between giving some money to an adult child for "safekeeping" and opening a separate, named account without telling a spouse. 

Do you and your DH already max your Roths?  If not (you mentioned that you are "straightening out your finances"), he could open a Roth in his name with the (internal) awareness that he is keeping/investing the money on her behalf and name her as the beneficiary were anything to happen to him.  I'd guess the tax benefits of a Roth are pretty minimal, anyway, to someone in your MIL's situation, though of course if you and your DH are paying taxes at your rate (as it sounds like you should be) on the money, then that could shift the picture.  In any case, it sounds to me like your MIL may be wanting the money kept in places that don't jeopardize the principal, which limits your investing options.