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Funding my Kids' Roth IRAs

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  • #16
    Originally posted by billy View Post
    Just a reminder contributions can be withdrawn penalty free from a Roth IRA before 59.5 years old. Its the earnings that trigger the penalties, and even those can be avoided in many situations (see POF blog for some of them)
    You're absolutely right, thanks for the reminder! I was thinking Roth TSP when I typed that.

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    • #17
      OP, feel free to do what you wish.
      "Roth IRAs in lieu of leaving any significant inheritance, and was wondering if others had considered, or if it was not a great idea."
      Roth contributions are a great idea. If you have funds you wish to give to your kids early, that can be very beneficial.
      Personal opinion is a 529 is better simply to take some of the burden off for developing their personal capital.
      Your responses indicate that you actually are looking for ways to tax efficiently provide contributions earlier. No problem with 529's for grand children either.
      I would not rule out inheritance or cut them off when they were adults. That was implied. Maybe not.


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      • #18
        Originally posted by Tim View Post
        OP, feel free to do what you wish.
        "Roth IRAs in lieu of leaving any significant inheritance, and was wondering if others had considered, or if it was not a great idea."
        Roth contributions are a great idea. If you have funds you wish to give to your kids early, that can be very beneficial.
        Personal opinion is a 529 is better simply to take some of the burden off for developing their personal capital.
        Your responses indicate that you actually are looking for ways to tax efficiently provide contributions earlier. No problem with 529's for grand children either.
        I would not rule out inheritance or cut them off when they were adults. That was implied. Maybe not.
        "in lieu of any significant inheritance". I never said that there would not be anything else. But we would stop funding Roth IRA if it was drawn before 60... that wasn't implied, just stated. And whatever of the estate remained at the time of our deaths that we wanted to leave the children would be divided equally, whether $1 or $1m. They should not expect an inheritance at that point. You already said it wasn't an obligation. I just wouldn't be concerned if there was nothing left to divide at that point.

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        • #19
          Interesting discussion.
          Early life decisions and 'tests' to see if the kids are fiscally responsible and optimal ways of wealth distribution to next generation and beyond.

          UTMA - watch for kiddie tax implications.
          529 plan for college
          Roth IRA (with earned income)

          We're just entering the 529 utilization portion of our life cycle and same for Roth IRA - did matching plan. Earn $, we put in same to Roth IRA; bonus: 1:1 match if they save earned money into taxable investment (index).

          So, for those that FAIL the tests of above -- dip into UTMA for Ferrari, blows 529 on underwater basket weaving or accesses Roth IRA for Sky diving in the the Polynesians. --- some will adjust the downstream inheritance -- ie cut off completely -- while others will NOT alter one bit between the siblings on what they get or how much is prescribed in the Trust fund?

          Makes for some interesting scenarios that we fortunately haven't had to think too hard as so far, the now adult children have been responsible people.


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          • #20
            Originally posted by Special Delivery View Post

            "in lieu of any significant inheritance". I never said that there would not be anything else. But we would stop funding Roth IRA if it was drawn before 60... that wasn't implied, just stated. And whatever of the estate remained at the time of our deaths that we wanted to leave the children would be divided equally, whether $1 or $1m. They should not expect an inheritance at that point. You already said it wasn't an obligation. I just wouldn't be concerned if there was nothing left to divide at that point.
            "whether $1 or $1m" Cutting it pretty tight with a surviving spouse. Think I would stop the roth contribution at some point.
            That is a tough target to hit over 40 years. Do the Roth and good luck. Many kids would love to split $1m.Pocket change.

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            • #21
              Originally posted by Tim View Post
              "whether $1 or $1m" Cutting it pretty tight with a surviving spouse.
              ... You realize those are arbitrary numbers? I'm not cutting anything tight.

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              • #22
                Do it. I think some of the arguments brought up are missing the larger point: a two-physician household with a federal pension plus two social security income streams should easily be able to afford to give away 1MM while they are still living. The surviving spouse should still have millions and the kids will still inherit a nice sum at the end. We plan on continuing Roth match.

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