#RetirementPlanning #InvestingForKids #LongTermInvesting #FinancialPlanning
🎁 Gifting $20K to my kids for their retirement 🎉
Are you considering gifting $20,000 to each of your kids for their retirement? It’s a generous and thoughtful idea that can set them up for a more secure financial future. In this article, we’ll explore how you can set up this gift, the potential pitfalls to watch out for, and why it’s a valuable investment in your children’s future.
Setting up the Gift 🎈
1. Establish a Trust: Setting up a trust is a popular way to ensure that the funds are used for their intended purpose – your children’s retirement. By creating a trust, you can specify the terms and conditions for accessing the funds, such as reaching a certain age or retirement date.
2. Choose the Right Investment: Consider investing the $20,000 in a low-cost, diversified index fund like VTI (Vanguard Total Stock Market ETF). This allows for long-term compounding and potential growth over the next 60 years.
3. Seek Legal and Financial Advice: It’s crucial to consult with a financial advisor and possibly an attorney to ensure that the gift is set up properly and complies with all legal requirements.
Potential Pitfalls to Avoid ⚠️
1. Premature Access: One of the main pitfalls to consider is the risk of your children accessing the funds before their retirement. To prevent this, the trust can include specific guidelines and restrictions on when and how the funds can be accessed.
2. Unexpected Circumstances: Another concern is the possibility of your children passing away before they can use the funds. By setting up a contingency plan within the trust, you can ensure that the funds are distributed according to your wishes in such unfortunate circumstances.
Making the Most of the Gift 💰
While it’s essential to plan for your children’s long-term financial security, it’s also important to prioritize other aspects of their financial well-being. By funding 529 accounts for their education and maximizing your own retirement contributions, you’re already taking significant steps to secure their future.
The $20,000 gift can serve as an additional safety net for their retirement, allowing them to allocate more of their own resources towards other financial goals, such as buying a home, starting a business, or pursuing their passions.
In conclusion, gifting $20,000 to each of your kids for their retirement is a meaningful way to support their financial future. By setting up a trust, choosing the right investments, and seeking professional guidance, you can ensure that this gift provides long-term security and peace of mind for your children.
Remember to plan for the unexpected and communicate your intentions clearly to your children. This thoughtful gesture can make a significant difference in their financial well-being and demonstrate your enduring love and support.
If you’re considering gifting $20,000 to your kids for their retirement, contact us today to learn more about setting up a trust and making the most of this valuable investment. #FinancialSecurity #GenerationalWealth #LongTermGifting #FinancialFreedom
You could just leave the money in a trust, which determines how and when the heirs can use the money.
>but the $ will be in an account they don’t touch until their retirement.
Unless they have earned income there’s absolutely no retirement savings. You can invest for college or have money for them to use at their discretion (529 vs UTMA/UGMA). Research.
Open a couple of brokerage accounts in your name, put the money in those, and ear mark them to be given to your kids later when you know they are responsible enough to handle it.
Or just fully fund your retirement so that later in life you are more than taken care of, and you are more free to give your kids gifts.
Putting that 20K in a 529 so they can get an education seems like a better idea but good on you for being able to do either one.
OP, you should max your own 401k and Ira and your spouses should you have one. That would be about $60k/year you could be putting away.
Then when you pass, it’ll go to them anyway.
But how you’re suggesting to do it, I think only up to the amount of money they earn that year can be put into those types of accounts. So they would need to earn something.
I just did this. Opened 3 custodial Roth IRA accounts at Fidelity for them. It’s easy, and they take control once they turn 18 (in my state, 21 in some). Roth’s are after tax anyway.
529, especially since they added a way to convert to Roth IRA. Secure 2.0 Act.
You can set up a trust for each child at birth. This is called a *Crummey* trust. You can set up the trust so that they are *technically* allowed to access the money for a period of 30 days. You have to give notice to the new born. After this withdrawal window closes, then the terms of the trust say that they are not to access it until whatever age you want.
Then you can open a brokerage account in the name of the trust. You can fully dictate the terms of the trust and whether it can be accessed for emergencies.
Set up an account with Vanguard or Fidelity where you are the custodian. Ownership won’t transfer over until they’re 18.
You’re a great parent. My parents did this for me when I was born. 10k for me and my brother. It was such a cool surprise and seeing they have taught me retirement savings are important. I won’t cash in until I retire
Honestly just make additional brokerage accounts, in your own name, one per child, funded as you wish. This will be free through a variety of brokers.
For each child’s earmarked account, set that child as the beneficiary on the account. If you pass before their retirement, the account automatically transfers into their own control.
If you are alive when they are ready to start retirement, just gift the entire account to them. The shares will retain their original basis.
This could also have have the tax advantage of providing a step up in basis, if you pass before the account is transferred to them. This could be a really significant tax savings.
OP, make sure your own retirement is taken care of first. This strategy also means that if your own retirement funds fall short, you are able to ensure your needs are taken care of before funding your children’s retirements.
Sure, it’s called an UTMA account. Your broker can help you set it up. There are limits on the amount that is tax free – meaning you’ll have to start filing income tax returns for them if you go above a relatively low threshold, but it is their money.
Personally, I didn’t use that route. Rather, I funded their 529s and then, once they start working, opened a Roth IRA for them, into which I contribute however much they earn during the year (up to the contribution limit). Think that’s a simpler approach to get to the same result.
I wouldn’t hold them to access for their retirement, personally. What if they run into health issues and die at 45? What if they come into extreme hardship and need money? What if they can’t afford to start a successful life (can’t go to school, for example), and are struggling? I understand the idea behind it but it sounds more like you’re projecting your thoughts about retirement onto your kids.
Look back 60 years to see what types of accounts and stable financial institutions were around then. Lots of changes since then.
P.S. Benjamin Franklin had a similar issue when he wanted to establish a charitable trust fund that would last 200 years. The amazing thing is that his funds did survive 200 years, but not as lucrative as predicted.
You can just open a UTMA account in their name, with you as the custodian. The biggest issue with this is that, for college, it counts as their money. This only makes a difference if you expect to get financial aid.
It’s your money and if retirement is what you want to fund that’s great, but one thing you might want to consider is a gift that will come to them sooner. For example, a chunk of money to use in buying a house would probably be greatly appreciated. It would likely stand out more as well, maybe be the crucial thing that gets them into a home.
I’ve done this….here are your options…
1. Open a separate account (in your name) for each child you want to do this for. The income/taxes related to this account are tied to you. At some point in the future (when you decide) you could add them to the account. Depending on its size, there might be some gift taxes to consider.
2. Open a UTMA investment account. This account becomes theirs the day they turn 18 whether you want it to or not. You could technically use some of the funds in these accounts prior to their turning 18, but whatever you use would have to be shown to be for their benefit.
3. Create a trust that specifies when/how these funds can be accessed by the beneficiary, and who the acceptable trustees are for the fund. This route gives you the most flexibility in accomplishing specific custom objectives, but there’s going to be an upfront cost to setting this up. (Presumably once you did one, you could use the same documents to create others with the same stipulations for other kids.)
I went with option 1, and I started each kid with $17,500. They are 10/8/6 years old, and their accounts are now at $41k, $32k, $32k. Up until now I’ve paid the taxes associated with their gains…at some point I’ll probably start paying the related taxes out of their gains…but I’m trying to keep as much in during the early years to take advantage of compounding as much as I can.
My plan is to let them know about this when they are ready to start a family/buy a home later in their life. Essentially letting them know that I started a retirement plan for them when they were born which would hopefully be enough to not need additional contributions from them.
As part of this, my plan is to make sure that I advise my kids contribute to ROTH IRAs when they start working in a meaningful way, as it has additional flexibility for withdrawals and purchasing a home.
Congrats on being in a situation to be able to afford to do this for your kids, and good luck!
Edit: You can also easily name each child as the beneficiary of their respective accounts in your name if you are worried about passing away at some point before you act to give them ownership of the accounts.
You really want this money to make its way into a Roth account, but you can’t do that until they have earned income. You’ll probably want the money to grow in brokerage accounts until they have jobs, and then contribute it to Roth accounts.
Take that $$ and buy a life insurance policy for yourself and split it between the kids. This way it’ll be tax free and way higher % return compare to stocks.
I personally love this idea and wish I could do the same. Everyone says 529 accounts but I feel like the restrictions outweigh the tax advantage.
Just $15k at birth should theoretically be over a million dollars at their retirement. That doesn’t even count anything they make on their own.
Doing this front loads their life savings and then they can worry about their own student loans if they want (who knows what educaiton will look like when it’s time for them to go to school), and you can just continue to fund your retirement.
Use a 529 account instead. If the kid doesn’t need all the money for education, up to 35k can be converted to Roth IRA after 15 years.
https://www.cnn.com/cnn-underscored/money/529-to-roth-ira
Why not allow them to enjoy it in the prime of their lives (20’s/30’s)rather than wait until they are established and old? Why not allow them to use the money to better their lives and therefore the chance that they retire after using the money to improve their trajectory?
I’m going to echo others, your kids don’t need help saving for retirement if you give them the means to do it themselves that money can be a car to get to school or pay for housing for a few years in school etc… drop it in a 529 or a trust fund and let them have it at 18 when they actually need it
In 2024 you are allowed to give a up to $18,000 tax free gift. Your spouse is also allowed to give $18,000 tax free gift. I am not a tax attorney or preparer so please discuss this with your tax person.
[https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2024](https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2024)
Not an answer to the question but dont u think its a little much to make them wait til retirement? Not to get dark but thats even assuming they make it to that point,
Most ive heard usually wait to college or when they turn 21, like yea a lifetime of interest is nice and all but their life is damn near over once they get it, at that point its going to their grandchildren
That’s not a great idea. You should already have separate accounts set up and have it reinvest into itself as well as you adding to it over time. Then you should allow your children to take over their economics in their mid twenties. What you’re suggesting is control which is not a good recipe
One disadvantage: assets in your kids name would be considered as an asset they can use towards college at 20%
Parent assets are 5.64%
The FAFSA (fed govt) currently shields retirement accts but this may change in the future
Private schools may ask for a CSS profile and may dig deeper.
If you are in no danger of getting financial aid, perhaps it doesn’t matter. If future financial aid eligibility does matter, and you are considering a more near-term goal like college, a grandparent owned 529 may be a better option.
Don’t. Just keep the money in an investment account earmarked for them and transfer it much later in life when you’re more certain it will be used for their retirement. You could use a trust but that will reduce returns.
Read the book Die With Zero by Bill Perkins. He makes great points about how it’s fantastic for parents to give money to their kids. But do it when they’re 25-30. By that point, they are (ideally) responsible and not gonna blow it all on stupid shit. They are able to use it more advantageously at that point in life. Maybe it’s to pay off student loans, which then allows their normal income to stash away debt-free. Maybe they want to buy a house and that money is their down payment plus more. Even after 25-30 years that 20k compounded is going to be a huge sum. Better to enjoy it when you’re young and healthy than when you’re retired and old.
My husband read some advice that I think is applicable.
It’s more impactful to give a young adult $10,000, than a middle aged adult $100,000.
Give them money when they are young.
I inherited a small amount of money ($16,000) when I was 25. I bought a computer and wasted some of it. But having that money allowed me to buy the airfare to visit someone I met online (who is now my husband). And it gave us the money to have a long distance relationship for a couple of years, and a small cushion for me to move halfway across the country to live with him.
It wasn’t a huge amount of money, but it was life-changing.
You could overfund their 529 accounts because they can turn a portion of that into a Roth.
You could set up a trust with each of your kids as a beneficiary, splitting it equally. If it’s in their name, you can’t make them not touch it until retirement.
Under the new 2024 tax law open an education IRA for them. After 15 years if untouched you can roll it into a nontaxable Roth IRA they can access at 59-1/2.
https://www.forbes.com/sites/kellyphillipserb/2023/02/15/you-can-roll-your-529-plan-to-a-roth-ira-beginning-in-2024/
We stretched to cover the kids’ educations, but because we worried they wouldn’t understand money, we told them that everything they saved during high school and college would launch them as they started out in life. They all achieved financial independence immediately on graduation and we’re actually sort of stunned and amazed…
My father started putting a small amount monthly in to a life insurance policy in my name when I was born. He’s 80 and I’m 52. As far as I know he’s still doing it. It’s like AUD7 a month or something.
Open a 529. They can use it for college or convert up to $35k into a Roth after the 529 has been open for 15 years.
Put 20k into a 529. Let them, as an 18 y.o. adult, decide if they want to us it for their education or roll it into a roth IRA for their retirement fund.
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New law that you can roll a 529 into a roth IRA after a certain time (15 years). This is what I am doing with each kid.
You would probably want to use an IRA and have it set up at the same place you are setting money management up for you. The caveat is that it might be too small a volume for firms to be interested in taking up. You could set up trusts and such but I am not sure the growth will be there.
You could even just buy savings bonds at that point.
Get an accountant or cpa to set it up. Do a Roth IRA and spread it out over a few years – that way the investment gains are tax free at retirement.
Also a “safe” investment scheme of 20k will be worth $1.3MM at age 60. So, adjust your amounts as necessary.
I will give my 2c as to what my grandparents set up . They set up an irrevocable trust (not always a smart decision as many things changed in the 30 plus years and some ex members of the family (divorces etc) still got money my family didn’t want them to have.). This trust can be accessed at different ages 35/45/55/65 (I don’t know the actual ages but it’s similar.) this is all accessible only after death of my grandparents which personally I hate and think it’s fucked up.
I personally could use the money now. Not in a im broke way but in a I have built a career around construction and could truly use the money to start developing or buying rental relestate and increasing my net worth exponentially. I have the knowledge and the contacts but not the funds. I wish it was set up no matter death or not.
The reason I state the above is that if this is for your kids I wouldn’t necessarily make it accessible only at retirement but more so for first home, emergency doctors visit, etc etc. this way it’s accessible in the most needed situations but your kids won’t go blow 20k at Vegas or something like a car etc. have it earmarked for maybe 50 or 45 so that if it does grow significantly over 40 years, they would be able to retire early or not be held back by a job etc and Perdue something they love.
I hate working for someone else when I know I could be working for myself. Hopefully soon.
But yeah, set up trusts.
Why not gift it in a college savings account instead? 529s are great. If you can provide them a job with you as they get older, you can set them up for retirement then. I’ll probably have my kiddos help me manage a side business once they’re old enough to understand. Also, set up a living trust once you have these kiddos so that they’ll be provided for once you pass. If you have money to throw around, do it wisely unless there’s simply so much it doesn’t matter how you choose to sock it away. My kiddos cannot access their trust until they turn 25 if both me and my spouse die. You can make these stipulations. It’ll cost you a little to set it up but it’ll be nice to know it’ll all be taken care of
If it’s a gift, it’s a gift. If it comes with strings attached, it’s not a real gift anymore, but just another means of control.
I’m not gifting someone a basketball but then tell them to only shoot three pointers with it.