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Re: Helping Your Children to FIRE?
Old 10-05-2005, 05:01 PM   #21
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Re: Helping Your Children to FIRE?

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Originally Posted by Have Funds, Will Retire
Yes, give it to someone deserving, like the govt... :P
Well, we are going to get taxed anyway. I'd rather be taxed after I am dead.
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Re: Helping Your Children to FIRE?
Old 10-05-2005, 05:16 PM   #22
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Re: Helping Your Children to FIRE?

Good point!!
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Re: Helping Your Children to FIRE?
Old 10-05-2005, 06:46 PM   #23
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Re: Helping Your Children to FIRE?

I think its a mistake to drop 40K on a 25 year old. If they are responsible enough to use the gift wisely then they are responsible enough to save for their own retirement.

The husband and I have a great sense of accomplishment from having done everything on our own. I wouldn't want to deprive my kids of that feeling. I also wouldn't want the burden of a gift that had obvious expectations attached to it. Maybe your kids don't care about ER, or won't in 10 years. If they dip into the money or slow down their personal savings rate because of the windfall will you be silently (or not so silently) watching and judging their spending habits?



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Re: Helping Your Children to FIRE?
Old 10-05-2005, 06:48 PM   #24
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Re: Helping Your Children to FIRE?

As a middle aged ER with a newborn, I can enable his FI easily. He gets our portfolio and the rest of our belongings on our passing, which statistically should be when he's in his forties and has a stable life and family.

In the meanwhile, he'll get school, a car, maybe help buying a house.
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Re: Helping Your Children to FIRE?
Old 10-05-2005, 08:53 PM   #25
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Re: Helping Your Children to FIRE?

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In the meanwhile, he'll get school, a car, maybe help buying a house.
Our daughter is executing the free agent clause in her contract to move in with your family.

I'd offer to trade but I don't think I can give you enough money to take her!
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Re: Helping Your Children to FIRE?
Old 10-05-2005, 10:30 PM   #26
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Re: Helping Your Children to FIRE?

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Where's the poll?
First, ask yourself what you would have wanted your parents to do in a similar situation. Personally, I would view the money as a windfall at any age. I'm not sure it would teach me anything.

Perhaps you could blow a wad each year for an exotic family get-together. I know the daughter of a rich guy who really appreciates those mini-adventures that she has with dad.
A poll is a good idea, who do we have who could handle it though?
If I got a windfall when we were younger I would do as my friend Samir: You know what I would do if I had a million dollars? I would invest half of it in glorious mutual funds and take the other half over to my friend Asadulah who works in securities.....
Yes, vacations..we are taking our oldest to Spain in April...vacations as a family are good, with just one kid is even better...
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Re: Helping Your Children to FIRE?
Old 10-05-2005, 10:58 PM   #27
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Re: Helping Your Children to FIRE?

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DanTien,
When I was 25 years old, my parents gave me 20k to supplement my 20k for a 20% downpayment on my condo. I did not need the money from them, but since it was my first big-time purchase, that 20k really eased my worries...with some money left over, i bought and sold and bought and sold and bought and bought other properties. it was addictive. i now own 3 condos with about 350k in equity. ...the point is, i was always a responsible person money-wise but a bit risk adverse... it wasn't until that extra assurance that my parents gave me that really took me to the next step financially.
You have done well. My intent is to empower my kids. I hope they do as well as you.

retire@40 said -Your kids have to want to FIRE just like all of us here want to FIRE. If they don't want it, you are not going to be able to force them to accept the philosophy.As I said later, they may not want to ER, but I would want to help them to become FI. They could decide from there.
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Re: Helping Your Children to FIRE?
Old 10-05-2005, 11:21 PM   #28
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Re: Helping Your Children to FIRE?

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No, don't do it! NO! NO! NO! Read "The Millionaire Next Door."
I've read it and I understand what you're saying

kz-We are committed to the gift of cash at 25, but Roth IRAs seem like a good idea later on - can they be funded by someone other than the owner?
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Re: Helping Your Children to FIRE?
Old 10-06-2005, 12:58 AM   #29
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Re: Helping Your Children to FIRE?

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Originally Posted by FlowGirl
I think its a mistake to drop 40K on a 25 year old. If they are responsible enough to use the gift wisely then they are responsible enough to save for their own retirement.
The husband and I have a great sense of accomplishment from having done everything on our own. I wouldn't want to deprive my kids of that feeling. I also wouldn't want the burden of a gift that had obvious expectations attached to it. Maybe your kids don't care about ER, or won't in 10 years. If they dip into the money or slow down their personal savings rate because of the windfall will you be silently (or not so silently) watching and judging their spending habits?
Flow - there is the good feeling of having sacrificed, done it on your own, and not done things because you couldn't afford it. We did that for 20 years and our kids learned to live modestly. We wished we had more money back then so we wouldn't have had to live with so much limitation. I think there are other ways of building character and feeling good about your life. Of course, this question depends on who the kids are, and after 20+ years I know who they are. I'm pretty confident that I have successfully passed on my Scottish frugal genes. All 3 work hard and are goal driven. They have a history of serving people. I think they will not squander the money, but I also want them to treat themselves to travel or something special. The money will be a gift with no expectations..the message will be that I have faith in you and confidence in your choices.
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Re: Helping Your Children to FIRE?
Old 10-06-2005, 01:25 AM   #30
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Re: Helping Your Children to FIRE?

My parents started gifting about 20 years ago.

They started off small, 1000.00 a year telling me not to count on it, and it was given at Xmas time so it looked like a gift. So for a few years it was just a windfall. I had a small mortgage at the time, and didn't make much so I used it to buy a few extras and paid some extra on my mortgage also.

Over the years it increased to become the maximum for the 3 of us, but that took about 20 years. I'm sure my Dad watched to see how I handled my finances before increasing. I always paid extra on my mortgage, and have not had a mortgage for almost 2 years. Now he's just trying to reduce his estate below the taxable limit.

I think a parent can see whether gifting is used smartly. If one had great concerns about how a kid would handle the money, you could always offer to pay on their mortgage....assuming they had a mortgage.

Dan, I opened and funded my kids Roth IRAs... Just remember that the contributions can be withdrawn without penalty. I haven't told my kids that, I want them to let the money grown until they retire.
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Re: Helping Your Children to FIRE?
Old 10-06-2005, 02:01 AM   #31
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Re: Helping Your Children to FIRE?

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Originally Posted by KB
My parents started gifting about 20 years ago.
KB, did you ever feel it was an entitlement? What would you have thought if they suddenly stopped gifting? I only ask because that would be my fear, and I recall the entitlement trap from the options, bonuses and raises I used to give to my wage slaves.
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Re: Helping Your Children to FIRE?
Old 10-06-2005, 02:04 AM   #32
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Re: Helping Your Children to FIRE?

kb - thank you for your post. It reminded me of my wife's parents who would give us a check for our anniversary It would increase $100 for each year we were married. My wife would tease me that they were paying a dowry on the installment plan and also that it was my reward for staying married to her. It got to be a pretty substantial check after a while and I told her that as long as those checks kept coming the marriage had a great future.
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Re: Helping Your Children to FIRE?
Old 10-06-2005, 06:27 AM   #33
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Re: Helping Your Children to FIRE?

I'm going to disagree with the crowd (as usual) and support the gifts to your children. My wife and I received a $25K gift from my parents for the down payment on my condo when I was 22, and $15K from my parents and $30K from her's as a wedding gift. Other than the down payment, not a cent of the money was spent, all of it has been invested.

My parents were only willing to give the gift for the downpayment after seeing that I had saved almost 90% of my take home income my first year after college (while living at home). I think the lesson is that you can't decide when or how much to give until you know how your kids are at that age. Even though I was making a good living, after tax dollars that aren't for rent, 401k, or living expenses can be hard to come by for somebody in their 20's. Giving your chidren the ability to start a real portfolio can be a wonderful gift.

Wasn't it Buffet who said to give your kids enough to do anything, but not enough so that they can do nothing?

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Re: Helping Your Children to FIRE?
Old 10-06-2005, 10:22 AM   #34
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Re: Helping Your Children to FIRE?

DanTien asked

"Besides teaching your children how to FIRE, are you going to help them achieve it"

$40k is a great gift and would be appreciated by both responsible and irresponsible kids.* Have you looked at the numbers?

40k over 25 years (kids would be 50)at 7% real is about $220k and would give $8800/yr at 4% SWR
40k over 30 years (kids would be 55)at 7% real is about $300k and would give $12000/yr at 4% SWR
40k over 35 years (kids would be 60) at 7% real is about $425k and would give $17000/yr at 4% SWR

If the money is saved, it would certainly help out, but realistically, I don't think a single gift will make a big dent in the ER date.*

Kind Regards,

Chris
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Re: Helping Your Children to FIRE?
Old 10-06-2005, 10:37 AM   #35
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Re: Helping Your Children to FIRE?

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Originally Posted by newellcr
DanTien asked

"Besides teaching your children how to FIRE, are you going to help them achieve it"

$40k is a great gift and would be appreciated by both responsible and irresponsible kids.* Have you looked at the numbers?

40k over 25 years (kids would be 50)at 7% real is about $220k and would give $8800/yr at 4% SWR
40k over 30 years (kids would be 55)at 7% real is about $300k and would give $12000/yr at 4% SWR
40k over 35 years (kids would be 60) at 7% real is about $425k and would give $17000/yr at 4% SWR

If the money is saved, it would certainly help out, but realistically, I don't think a single gift will make a big dent in the ER date.*
Now run the numbers with a $5K annual contribution to a Roth IRA starting at age 16.
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Re: Helping Your Children to FIRE?
Old 10-06-2005, 11:10 AM   #36
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Re: Helping Your Children to FIRE?

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kz-We are committed to the gift of cash at 25, but Roth IRAs seem like a good idea later on - can they be funded by someone other than the owner?
The kids have to have the earned income to be eligible for the IRA contribution, but the funds for the IRA can come from anywhere.

For example, your funding of their IRAs would enable them to max out their 401(k) contributions or to start self-employment IRAs from self-employment earnings. I'm not trying to say that either is necessarily a good idea, but these are a couple ways to work the tax code.
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Re: Helping Your Children to FIRE?
Old 10-06-2005, 12:18 PM   #37
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Re: Helping Your Children to FIRE?

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The kids have to have the earned income to be eligible for the IRA contribution, but the funds for the IRA can come from anywhere.

For example, your funding of their IRAs would enable them to max out their 401(k) contributions or to start self-employment IRAs from self-employment earnings. I'm not trying to say that either is necessarily a good idea, but these are a couple ways to work the tax code.
Sounds like Roth could be a good Retirement Helper instrument.
Ok, so if they do max out on 401k they can't fund a Roth with their money, but a gift Roth may work, but seek professional advice before doing?
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Re: Helping Your Children to FIRE?
Old 10-06-2005, 12:46 PM   #38
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Re: Helping Your Children to FIRE?

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Our daughter is executing the free agent clause in her contract to move in with your family.

I'd offer to trade but I don't think I can give you enough money to take her!
I'm still trying to get charlie or jarhead to adopt ME!

Please do note to your daughter that she'd have to put up with me and my wife for at least 40 years before getting the big bonanza. Probably not worth it. Definitely not when broken down to an hourly basis.
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Re: Helping Your Children to FIRE?
Old 10-06-2005, 02:10 PM   #39
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Re: Helping Your Children to FIRE?

Hey retire@40,

Ok, I'm game and was thinking of doing it anyway.* I have 13 years to go before my older child hits 16 but why procrastinate.* My handy dandy "how $100/mo will grow" chart assumes monthly deposits of about $420...*

5k/yr over 20 years (kids would be 36) at 7% real is about $212k and would give $8500/yr at 4% SWR
5k/yr over 25 years (kids would be 41) at 7% real is about $328k and would give $13100/yr at 4% SWR
5k/yr over 30 years (kids would be 46) at 7% real is about $490k and would give $19600/yr at 4% SWR

My handy dandy chart only goes out to 30 years...* This is a more generous gift.* The present value (terminology?) on a monthly contribution basis for the $40k one time equivalent is $280/mo over 25 years.

--------------------

"The kids have to have the earned income to be eligible for the IRA contribution, but the funds for the IRA can come from anywhere."

Here's hoping for the Lifetime Savings Accounts.* They can be funded with any money.*

Chris
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Re: Helping Your Children to FIRE?
Old 10-06-2005, 04:07 PM   #40
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Re: Helping Your Children to FIRE?

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Ok, so if they do max out on 401k they can't fund a Roth with their money, but a gift Roth may work, but seek professional advice before doing?
Well, yeah, but the rules are in IRS Pub 590 and a wealth of expertise & help can be found at Ed Slott's IRA Help forum. You don't necessarily need to run to a paid professional.

Here's an example of what I'm trying to say. The numbers may not be right but the concepts are correct. The correct numbers are in the IRS pub.

IRAs, 401(k)s, SIMPLEs, and other individual retirement arrangements have to be funded with earned income. You can only put in as much income as you've earned, so if you only earn $5000 that year then (no matter how high the other limits are) you can only put $5000 in an IRA.

There are limits to what IRAs can be funded, what can be deducted, and whether or not a spouse's account can be funded. Generally if you make more than about $40K/year the limits start kicking in.

A problem with maxing IRAs with earned income is that you also have to live on that money. If someone (thanks, Dad!) gifts you with your living expenses, then you can devote a bigger portion of your earned income to your IRAs. Of course you can only do this up to the extent of your earned income.

So first a kid would fund their workplace 401(k)s, using their salary deductions, up to the employer match. Then they'd fund their Roth IRA and their spouse's Roth IRA. That's $5000/person in 2005, and if either of the "kids" are over 50 they get a catch-up contribution of an additional $500. They might decide to fund conventional IRAs instead, or a combination of the two, but the total limits are the same.

Then there's self-employment income. That can also be put into a self-employment IRA. That's a little more complicated than 401(k)s and Roth or conventional IRAs but it might also be a good deal. The Pub 590 rules cover the limits and whether or not it's a good deal after paying self-employment taxes.
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