01 Jul Should I invest this IRA money for my kids?

Q. I have a traditional IRA that I don’t think I will ever need because I have a pension. Does it make sense to invest it the way my kids would so it would be more aggressive, because eventually they will inherit this account.
— Planning ahead

A. We’re glad to hear you’ve saved well and your finances are such that you think you will have extra money over your lifetime.

Generally, when you decide how to invest your money, the two most important considerations are your risk tolerance and your time horizon.

“Because each person has their own set of financial goals, objectives, and circumstances, there should be no automatic rule of thumb on how to invest by your age,” said Michael Cocco, a certified financial planner with Beacon Wealth Partners/AXA Advisors in Nutley. “This is one of those examples where it is important to look at all the details.”

So normally, a retiree or soon-to-be-retiree is usually counseled to be more conservative with their investments. But what if the person has no need for this money because of the existence of pension that adequately addresses their expenses?

If the primary purpose for this IRA is no longer short-term because you most likely will not need to use this money in retirement, then you can now look at this IRA with a long-term approach, Cocco said.

That said, when you have more time on your side, you can be more aggressive with the account by having a higher allocation to stocks versus bonds to give your money the best chance to grow long-term, Cocco said.

“However, your personal tolerance for risk should be taken into account as well because adding more stocks to get more aggressive will also bring more volatility in the account,” Cocco said. “If you are okay with stomaching the ups and downs of a more aggressive portfolio, and can truly focus on investing for the long-term, your children will most likely be better off by you investing more aggressively for their benefit.”

It is also important to note that even though you do not think you may need this money in retirement at the current time, what if a medical or long term care event were to occur?

Cocco said you should ask yourself if you have adequate funds available to help with these potential additional medical costs, or do you have long-term care insurance?

“Even though your goal may be to never touch this IRA and grow it for the kids, sometimes life may throw us a curve ball and it is important to also prepare for the potential of unforeseen costs, if they were to occur,” he said.

Email your questions to .

This story was originally published on July 1, 2019.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.