<p>The recent thread about paying off debt vs. retirement investing started my Dh and I back on last Year’s thought that we never acted on. I’m interested in everyone’s ideas.</p>
<p>Since D2 has graduated we have enough to fund a small contribution toward our kid’s Roth IRAs, which is a tax haven that we can’t use. We can’t fund the full $5,000 each, but maybe $2,000? </p>
<p>Here’s the dilemma…how much is too much?</p>
<ol>
<li> #1 kid is borderline at max income after he shoves everything allowable into very generous 401k. If he’s over should we reward his thrift by just giving him the amount to invest elsewhere?</li>
<li>Another kid won’t leave it as an investment unless it’s enforced. How much control is too much? She is in credit card debt and makes no headway on reducing it. She’s the one who will need it the most…should we contribute but let her know that we need access to the statements and that contributions cease when $ is withdrawn?<br></li>
<li>Frugal third kid is possibly embarking on expensive grad program. If we help her with that is it fair to also contribute to Roth if that’s even legal.</li>
</ol>
<p>Yes, I realize that this is an upscale problem. The first years I posted on CC my kid qualified for Perkins loans and we had negative income. Circumstances improve.</p>
<p>What we did was fund each kid for a ROTH IRA that matched the amount they earned the first year they had a job and could contribute to one. After that, we left them to fund their own ROTH IRAs or other funding. Both kids have never touched any of the funds we have given them–one is savings from all monetary gifts since they were born and the other is the ROTH IRA (small) that we created for each of them.</p>
<p>S earns a LOT more than D and is very good with his money. He uses his savings to buy inventory that he resells and makes a nice profit as a part-time business. D is mostly recovering her health and has not had a job since the 3 semesters she had a job on campus until they told her they had to let her go because she was not work-study. If and when she gets a job again, we plan to max fund her ROTH IRA until she earns enough that she can fund it herself.</p>
<p>For your middle kid, it sounds like she might benefit most from some sort of non-profit certified credit counseling, so she can make better choices going forward. </p>
<p>My understanding is that in order to fund a ROTH IRA, the person who has the ROTH IRA has to have earned income (or had a spouse that earned income) at least in the amount that the ROTH IRA is funded for, for that calendar year. Check with your tax advisor or IRS.gov for more details and information.</p>
<p>We currently support D but don’t provide any funding for S, since he already makes a good salary and even more with his part-time job. He has never complained and we hope that once D recovers her health and is able to get a job with a decent salary we won’t have to continue to support D. We do want our D to have a good ROTH IRA.</p>
<p>One thing you may wish to consider is to put the money into our OWN ROTH IRAs, which you can bequeath as you see fit. There will be no taxes on it when it is inherited. This way the funds will be there if they are needed for whatever the future brings for you or your kids and can grow interest free and you can keep track of it. If you are 50 or over, I believe each person can contribute up to $6500 for each you and your spouse.</p>
<p>Of course, you know that some will flame you for even the thought of funding your children’s retirement. Oh no!</p>
<p>I personally think this is a very wise financial decision that you can make to help your children, if you are able. It is an awesome way to pass your estate to your children, tax free. Whatever can be better than tax free? A relatively small amount of money in the early years can run into millions as they retire. I would love to pass onto my children that sort of money, but of course I don’t want them to count on it.</p>
<p>First, whatever you decide, I really recommend you tell them that this is untouchable. Absolutely! The statements can come to your house, and they don’t ever even have to see them, if you don’t trust they won’t touch them (then again, maybe you shouldn’t do this if you don’t trust them not to touch it). This is not their money until XX years old, they don’t have access to it. Which is untrue, legally, but as far as what Mom says, that’s the law.</p>
<p>Second, perhaps before giving this to them, have you fully funded your Roths? And if ineligible, have you done a backdoor Roth for both you and your H? Maybe you should do this first, at least you have complete control and no worries about what will happen to it. We have not yet funded Roths for our kids, as our oldest was able to fund his own, and the youngest hasn’t made enough money to make it worthwhile…but maybe next year. If I felt I had the extra money to do so, I would fund them in a minute.</p>
<p>Very smart, HImom. God knows what the taxes would be on that when you withdraw (hopefully far, far in the future). I can’t imagine these Roths can last much longer, they are too good of a deal.</p>
<p>I am looking to add my 2014 contribution to my traditional IRA and then converting all of it in January. We are hoping that H’s ROTH IRA will grow–we are cautiously investing it and will see how it goes.</p>
<p>Supposedly the economy is going to be booming next year (so they say), so hopefully it will be another good year in the market. I’d like another one like this one!</p>
<p>Maybe you know this, but only a spouse can inherit an IRA and make it their own with the standard IRA regulations applying to it. Anyone other than a spouse who inherits an IRA, including children, must begin taking required minimum distributions(RMD) within a year. This applies to both Roth and Traditional IRAs. The distributions can be taken over a 5 year period or over the life expectancy of the person inheriting the IRA. Taking the distributions over the child’s life expectancy would increase the amount of time for tax-free earnings to accumulate in a Roth. IRS Pub 590 has the details.</p>
<p>Annoyingdad, I thought there were no required minimum distributions for a Roth, ever. And all money withdrawn is tax free. That the only cost could be inheritance taxes if the estate is too large.</p>
<p>Nope, an inherited Roth is treated like any other IRA unless the beneficiary is the spouse of the original owner.
Your non-spousal beneficiary must remove a minimum distribution each year. The distribution would probably be tax free if the minimum five years of ownership had passed.</p>
<p>We have maxed out all of our tax-deferred options for the year under our own names, or I wouldn’t be thinking about this.</p>
<p>Worried me for a second that an inherited Roth might not be tax free! I have no worry then about RMD for my kids. I’m sure they’d be drawing from it far earlier than when they are 70 1/2, fifty years from now!</p>
<p>This is some useful information. We were in the process of updating our wills, and leaving our Roths to our kids as primary beneficiaries, instead of each other. Seems like it would be much smarter to leave the Roth to your spouse, for them to disperse as they chose, to avoid complications. It sounds like if the kids didn’t take distributions exactly right (even though they were tax free), they could have to pay a large tax penalty on something they shouldn’t have had to pay taxes on at all.</p>
<p>Yeah, I know that the beneficiary listed on the IRA supersedes what the will says, but we were going to change both the beneficiary listed and the wills to uncomplicated things. Sounds like a potential can of worms.</p>
<p>There was another thread on this topic recently … you may want to search for it.</p>
<p>Mom3ToGo and I recently did our estate planning and came to a couple conclusions. First, that barring some terrible health outcome will be in position to make some gifts to our kids in advance of their inheritance. In addition, we decided we wanted to make the gifts when they would have a bigger impact on our kids lives. If the money stays with us till we die it will go to our kids after they have done grad school, had kids, bought houses, paid for their kids colleges, etc. So we looked for high leverage ways to gift money earlier. </p>
<p>The first opportunity for us is funding Roth IRAs for the kids while they are in high school, college, and grad school. This transfers some of our bucks to them, got their Roth IRAs up and going, started their education in investments, and gave them access to our financial advisers.</p>
<p>Not sure what we’ll do after they have cleared school. Helping with houses, grad school, and grandkid’s college are certainly on tap … not sure what else.</p>
The catch to this approach might be inheritance taxes. Giving the money to the surviving spouse raises the size of their estate. The federal limit is pretty high ($5M) however a lot of the state limits are not that high ($1.0+M in Mass for example) so leaving an IRA to a spouse in Mass often will bring at least the Mass estate taxes into play.</p>
<p>^^So perhaps if you have a large estate, you’d be better off putting money into your kid’s Roth than your own, if you are using that as a vehicle to pass on your inheritance.</p>
<p>In our state, the state tax limits are the same as federal. The trust that our estate attorney helped us create will allow our assets to transfer to our kids up to our combined maximum, IF we ever have assets to that amount.</p>
<p>RE: the earlier comment about Roth’s always being tax free, if you do a CONVERSION, then you have to wait 5 years before accessing those Roth funds or you pay a penalty.</p>