“It is an interesting time when roles begin to reverse and the parent needs the emotional, financial, or daily support from the adult child,” says Martha Sullivan, founder of Provenance Hill Consulting. “It is a challenging transition for all involved because of many factors, including emotions, independence, perceived roles, and the quality of our relationships.” You can provide financial assistance while also keeping your own finances on track in the process. Here’s how. Ford says knowledge is power when it comes to your parents’ finances, so find out about their assets, insurance coverage, monthly expenditures, projected future expenses, monthly income from retirement accounts or social security, and housing changes or needs. “Analyze current income streams to determine how long they will last, and for married couples, whether they will continue when one spouse passes away,” says Matt King, a wealth planner in advanced financial planning at Wilmington Trust. “Examples of this may include pension plans with survivor benefits or annuities.” If you know you’ll be helping a parent financially down the road, make a fund for doing so now. “Establish a specific, interest-bearing savings account,” Ford says. “Analyze your budget and come up with a comfortable amount to automatically deposit into the account every month.” King also recommends finding ways to simplify day-to-day financial tasks. “Setting up automatic deposits for income they receive on an ongoing basis and automatic debit payments for recurring expenses, such as utility bills and credit card bills, can save time,” he says. “You may also help them set up online bill payments so you can assist them with managing these payments and review transactions.” You probably know that each child you claim on your taxes lowers your taxable income in the form of a tax credit. You can also claim a parent as a dependent if you have provided more than half of their financial support for the year, and their gross income is less than $4300 (as of 2022). Check with the IRS for additional rules and requirements. Claiming a parent may also allow you to deduct some expenses you pay to support them. For example, if you itemize your taxes and you paid medical expenses more than 7.5 percent of your gross income, you can deduct a limited amount. “To claim deductions for a dependent parent you must make those payments directly to the medical service provider, not reimburse your parent,” King says. If your parent is low-income but not yet eligible for Medicare, they may qualify for Medicaid, but if Medicare and Medicaid aren’t available, you can still help with health coverage. If you’ve added your parent as a dependent on your taxes and you buy your health insurance through the Marketplace, you can include your parent on your policy. But be sure to check whether purchasing a separate policy for them and paying their premium is cheaper. Wherever you are at in the process, protect yourself by identifying which funds are off-limits. “Take steps to safeguard your retirement savings and maintain healthy financial boundaries,” Ford says. And remember, assistance doesn’t always have to come in the form of cash.
