Taking Care of Mom and Dad: IRAs vs. 401(k)s

Your parents can put away money tax-free into either an IRA or a 401(k) -- but not both (unless their income is below a certain limit; in 2003 the limit was $60,000). An IRA isn't as attractive as a 401(k) primarily because your parents can't put in as much money on a tax-advantaged basis. However, an IRA is still a good way to put several thousand dollars a year in a tax-advantaged account. Although your parents need earned income in order to put money into an IRA, a nonworking spouse can put up to $3,500 (if he or she is over age 50) into an IRA. This means your parents may be able to put as much as $7,000 per year in an IRA, as long as they're both over 50.

If one of your parents is still working, they should know whether they are eligible for a 401(k) or equivalent plan. If they aren't, they should be putting money into an IRA.

If your parents aren't sure whether they're covered by a retirement plan, look at their W-2s -- the employer is supposed to check a notice box if they're participants in any tax-advantaged plan.

If your parents are part of a 401(k) plan at work or make more than the limit for a deductible IRA, they can put additional retirement money in a Roth IRA.

By the time you're beginning to help your parents manage their finances, they're probably more interested in taking money out of their retirement plan than putting money in. But it's important to remember that the years between age 50 and 70 offer some of the best, most tax-advantaged savings opportunity for Americans.

If your parents can work in their 50s and 60s -- even if the work is part-time, related to a second career or stems from a hobby -- they can put more money into retirement accounts than at any other time in their lives. In this sense, if no other, these are the golden years. (And it's a reason not to fret if they haven't reached critical mass yet.)