772-320-9658 [email protected]
Chapman Capital Advisors | Client Portal

18 Year Old

by | May 31, 2023 | Uncategorized

Congratulations! Your child just turned 18 and is a legal adult. While you’re undoubtedly thinking about college, jobs, and life after high school for your child, you also need to consider some legal documents that are not necessarily intuitive when thinking of 18-year-old but have major life implications.

You’re probably still supporting your child and will for the next several years. But once they turn 18, you no longer have control over things like medical and financial decisions should something happen. For example, if your child needed hospitalization or other medical care, you have no automatic authority as a parent to make medical decisions and may not even be able to see their medical records. If your child became unable to handle financial matters, you wouldn’t be able to step in and handle it or even have access.

Having the right legal documents in place, just in case, can help you go straight to helping your child rather than fighting through legal issues and going to court. The most critical documents are (1) medical power of attorney, (2) living will, and (3) durable financial power of attorney, which you may already have in place for other family members. Before your child moves out, talk with them about these documents and what they mean, then head to see your estate attorney.

Medical Power of Attorney

A medical power of attorney is an advance healthcare directive that allows your child to grant another person the immediate legal authority to make healthcare decisions on their behalf if they become incapacitated and are unable to make decisions for themselves. This document would let you (or whoever has the authority) make medical decisions if, for example, your child was unconscious or otherwise couldn’t communicate with medical professionals.

Without a medical power of attorney, you would have to get a lawyer and petition a court to appoint you as a legal guardian before you could make any decisions or even see medical records. With the medical power of attorney, you can immediately help your child. And a proper medical power of attorney will include a HIPAA authorization, so you can access your child’s medical records and have informed decision making.

Living Will

A living will is an advance directive that provides specific guidance on how medical decisions should be made, especially in potentially end-of-life scenarios. The prime example is whether to remove life support in certain situations and who should be called to the hospital. In addition, a living will can address quality of life decisions for your child and what they want.

Durable Financial Power of Attorney

If something happens to your child, you may need to manage their money and financial decisions. A durable financial power of attorney allows you to manage their financial and legal matters, such as paying bills, handling tuition, applying for student loans, and managing bank accounts. Like the medical power of attorney, if you don’t have this document, you’ll have to go to court.

Start your child’s adult life out on the right foot and make sure they have these basic documents in place. You’ll show them you’re thinking about their future and you have all your ducks in a row. We are happy to set up a family meeting so we can help you and your kids head into adulthood on a firm legal and financial footing. Give us a call to make sure you’ll have the right to help your adult child if they ever need it.

Am I eligible to Convert my Traditional IRA to a Roth IRA?

Converting your Traditional IRA to a Roth IRA can be one of the best financial decisions made when saving for retirement if done correctly. Prior to 2010 there was an income limit that restricted the conversion to a Roth IRA if your (AGI) was over $100,000. As of 2013, the income limitation does not exist for a conversion, but it still exists for contributions. This does not mean it will not come back in the future, but for 2013 and beyond anyone can convert an existing Traditional IRA to a Roth IRA regardless of income.

For example, someone has a Traditional IRA with $350,000 invested, that IRA can be converted to a Roth and all the taxes need to be paid for the tax year the conversion was completed. After converting to a Roth, the money grows tax-free. Paying the taxes on this money now might sound like a tough pill to swallow, but the potential tax savings down the road can be significant. Wouldn’t you rather pay taxes on $350,000 now than pay taxes on $1,000,000 in the future? One of the keys to doing this correctly is paying the taxes with funds outside of a qualified plan. Paying the taxes with money from the IRA defeats the purpose and will negate the full tax saving potential.

This is just one example of completing a Roth conversion. You can do partial conversions as well. This means you do not have to convert the entire account. You could develop a strategy of doing partial Roth conversions over multiple years. The key is to consult with your tax advisor or accountant to make sure the conversion will not put you into another tax bracket. Every dollar you convert is taxed at your ordinary income tax rate. This strategy works best for younger investors who have longer to allow the money to grow and compound. It can also work well for an older investor who is in a low tax bracket. Another reason to convert to a Roth is that Roth IRAs are not subject to the Required Minimum Distribution after you reach age 73. For those of you out there that do not plan to use your IRA money to live this can be a huge advantage when it comes to passing along your IRA to your beneficiaries. Roth IRAs continue to grow tax-free after the conversion and after you die. There are distribution requirements for the beneficiaries, but the distributions are tax-free as well.
This strategy might not be right for everyone. I would advise you to consult with a Certified Financial Planner™ or your tax advisor prior to taking advantage of this potentially large tax savings. One of the best times to complete a Roth conversion is when the value of your Traditional IRA has fallen due to a market correction like we experienced in 2022. If you have questions on this article or would like to schedule a free financial review. Please contact Jay Chapman at 772-320-9658 or email [email protected].

Jay Chapman| CFP®

Jay Chapman| CFP®

Founder

Jay Chapman, CFP®, is founder of Chapman Capital Advisors, as a member of the advisory team. He has over 20 years of experience in the Financial Services industry.

Will Thompson | CFA®, CFP®, AIF®

Will Thompson | CFA®, CFP®, AIF®

Advisor

Will provides the in-house expertise of CFP®, CFA®, and AIF® that is uncommon for boutique firms.


Let's Start a Conversation

1 + 11 =