[frugalvillage2019]

Hi, all. I wanted to get opinions/ideas on what I could say to my parents who own a business that I work for as a bookkeeper. They want to use their 401k as an emergency fund for their business. I believe this is a really bad idea and they should have cash reserved for the ups and downs of business but not their 401k cash. They don't listen to me about finance so I must not be saying the right things to get them to understand why that would be a bad idea. My father plans to keep working and doesn't plan to "retire". My mom doesn't work. They're in their 60s. Any advice?

 

[CPA-Kim]

So they're over the age of 59.5....that's good. They do realize that the income is taxable and it is going to be taxed at their marginal tax rate. Are we talking about small amounts or a big chunk? How much other money do they have? Do either have a pension? How much will they collect in SS Income and when do they plan on collecting SS.

Taking money from a 401k should be the last resort. Is it possible for them to look at their budget and begin a fund specifically for ups and downs in the business? Are they willing to let you help them with a budget?

Unless I saw their financials, I don't know what to advise. Perhaps they would be willing to have a consultation with a financial planner.....one who doesn't sell product.

 

[frugalvillage2019]

Thank you for your reply, Kim. I'm not sure if they understand that the income taken from their 401k will be taxable. They plan to leave it in there (I hope) unless their business checking "gets low". So I don't know about amounts they might take out of their 401k to fund their business. I guess it would depend on what kind of emergency it ended up being. That is their only retirement money that I know of but they are against retirement for reasons I don't understand. There are no pensions.

Its my understanding that if they collect social security, they can only make so much money in a year. Is that correct? SS wouldn't be enough to cover their expenses I don't think. They won't tell me much. There is no budget for the business. They already met with a financial planner whose only advice was for them to set up the 401k. They don't have Roth IRAs or anything else.

I have been trying since summer to get them to set money aside for emergencies for the business. The money they're about to add to their 401k is from the business, about $30k they want to move to their 401k to avoid paying tax on it, that's what they think they're doing anyway. I'm frustrated with them for this but I'm the kid so they won't listen to me. Their accountant is telling them to do this. I'm not sure what to do. Or should I just stay out of it. They are my employer though too and if they weren't family, I'd be looking for another job.

 

[khaski]

In your shoes, I guess I would try to emphasize that a 401k is to live off when old age and the declining health that comes with it come a'knockin'. Even people who plan to work their entire life may reach the point where it's no longer physically or mentally possible.

Do they have a non-business emergency fund, and is there enough in there to cover home and business should they run into a rough patch?

Have any of you heard of Dave Ramsey? I am thinking this is the type of call he likes to have on his show, and maybe your parents would hear it better from a bona-fide, nationally renowned financial expert instead of their 'baby'. I think that's what they really need- someone who actually knows what they are talking about who isn't their 'child'.