IRAs & Bankruptcy

[ethereality]

I've learned so much from the wise people of the forum, and I have one dilemma:

My mother, who is in her early 50s, is in a financial, slow-moving trainwreck. She is easy prey for financial schemes, and is in a lot of debt. My attempts to help her on a day-to-day level, or show her through example are not working, and I'm not interested in changing someone who does not want my help in that way.

However, she has asked for my help starting a retirement fund. She's never opened an IRA of any kind. My boyfriend and I live with her, and she won't take rent money from me. But, she's okay with me opening an IRA for her, and putting what would've been rent into a Vanguard mutual fund account.

If the financial trainwreck happens, and she needs to file for bankruptcy, I'm afraid the money I'm saving for her will be garnished. I'm doing some initial research, and it seems to vary from state to state (I'm in CA, if that matters). She has a line of credit open, a mortgage, and I'm worried she has IRS debt too (she won't really lay down the numbers for me, or tell me if she does owe the IRS money.) I'm also worried about impending health problems.

Is opening a retirement account for her the best option? Should I just invest the "rent" myself, and use that to bail her out if a crisis happens? Or, start an emergency fund for her? Either way, my boyfriend and I have set aside the rent money already, and do not consider it "ours".

My father's not really in the picture, and she has had a difficult life, and her sacrifices enabled me in part to succeed now, so I do not just want to abandon her. Her issues with not letting me help has a whole lot to do with pride. I'm 24, with a net worth of about 70k, if that makes any difference.

[Chrissy]

After a little searching on the web, it looks to me that an IRA would shelter up to $1.2M from creditors during bankruptcy in CA.  I'd call a bankruptcy attorney and find out for sure. 

However, since your mother is "easy prey", I would--as you said--invest the rent money yourself, and use it to bail her out, or to supplement her upkeep later on.  Since her investment needs are drastically different from your own, I'd consider the Target Retirement 2025 Fund for that money for easier bookkeeping, and because it automatically rebalances.

If she won't divulge how much she owes, maybe she'll tell you what's likely to come in?  Ask about her Social Security and/or any employer pension, and see if you get anywhere.

[Bob W]

+1 for keep the money out of her hands.  Regardless of the potential bankruptcy and federal tax liens she would have access to it and likely choose to pay the penalties to access it. 

So you might start for looking at things she will need post bankruptcy --

A large rental deposit comes to mind + several months of living expenses.   

You can keep the funds in standard investment accounts and put her down as the TOD.   

It sounds like the fan will be hit,  so be prepared to be a ready supply of cash.  And remember this is the person who raised you and paid for you to be able to survive in this life.   She is actually pretty typical when it comes to money skills.   You are unlikely to change her ways. 

As you save for your own retirement please be sure to save enough for her to have an income stream at age 65 as well.   I'm thinking 10K per year into a "mom" account.