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Inequality with my kids--how to handle
Old 12-27-2019, 04:28 PM   #1
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Inequality with my kids--how to handle

This turns out to be a typical first world "problem." The kind of problem it is good to have...
I am not sure anything at all needs to be done, or can be done or should be done about this situation between my two sons, but it points up the effects of different life choices and SEQUENCE OF RETURNS effects, and the power of compounding---


Betweeen UTMA and 529 accounts, I saved up what were essentially equal, sizeable amounts to fund my two kids' educational choices. The older one went to school 3 years earlier, to a slightly more expensive private school and then also attended graduate school As a result of that, and because he began school fund withdrawals in the midst of the big market recovery, he ended up using up all of the money in his name. No worries. He has a great job, great salary, etc.



Meanwhile, the younger son is scheduled to graduate in May 2020 and even if he were to go to graduate school, which he is not considering at present, will wind up with A LOT MORE money in the UTMA, thanks largely to Mr Market and the timing of withdrawals after the big run up, as well as slightly lower tuition expenses. I did put a little more into the younger son's account early on -by mistake- and the compounding certainly has paid off for him. And the 529 will not even be anywhere near depleted.

I know I can reassign the 529 to a future grandchild or even to my own qualified educational expenses if I so desire-- or take the 10% penalty and pay the taxes if I really want to... but probably won't do that latter thing.


So should I encourage my son to do anything to "even things out?" . Or is this just the way the cookies crumble and there is nothing to be done?
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Old 12-27-2019, 04:57 PM   #2
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I'm not sure what expectations you set for your kids, but it seems to me that the gift that you have given to your kids is a paid-for higher education. The 529 was just a tax efficient ways for you to pay for the gift. If your younger son wants to continue in school, you can let him know that you support him in the same way you supported his brother. But IMHO you have given the same gift to both your sons and are the owner of the 529.
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Old 12-27-2019, 05:08 PM   #3
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I also funded my 2 kids' UTMA since their birth. By the time when both graduated, one left with a large balance. The other kid had summer intern and part time work and still short of few thousands which I funded from my checking. They do not know their balance all along and only know they had an education fund. I do other things to balance the difference.

So the issue of inequality is in your mind, unless you actually told them the balance.

If you feel the elder son is short changed, and you have sufficient funds in your checking, I would fund his Roth IRA and HSA if he is eligible. Do it few times until he received enough to match his brother's balance.
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Old 12-27-2019, 05:56 PM   #4
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I do not understand the need to balance anything out. Both children had their edu funded by you. Their choice of schools. Simply because one does not go on to grad school does not in any way mean that your are treating them unfairly. I cannot see an issue, other than in your own mind.

We had the same situation with our two children. We also have the same with our grandchildren. Only one child is married with children. We fund each grandchild's edu account @ 2500 per year from birth.

Plus, our will stipulates that the first $100K off the top goes to each grandchild to fund edu. We do not know if my son will have any children or if he will have five.
After the edu amounts the estate gets split down the middle.

We are not in the least bit worried if one child has more grandchildren than the other when it comes to the edu funds. Our two children do not care either. They were just happy to have their edu funded without the need for student loans. Ditto for their children.
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Old 12-27-2019, 10:17 PM   #5
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As others have said, you provided each with a paid for college degree. Seems equitable to me.

Differences in age, school choice, investment performance, etc. and the uncontrollable associated with them don't negate that.

Recapture the remaining funds, spend some on yourself and use the remainder to fund Roth IRAs for each over the next several years
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Old 12-27-2019, 11:58 PM   #6
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You did your part by funding their 529s and UTMAs. You can't help what happened with the market or with each individual child's decision to go to graduate school or not. I personally would not try to encourage the younger child to give up a portion of the remainder of the UTMA.

This is one reason I only use UTMAs and don't bother with the 529s. Technically, 529 money is the parent's, which is why, like you said, you can transfer it to other beneficiaries or cash it in and pay the taxes/penalties. I like the UTMA because from the moment it is transferred into the account, it becomes the child's money, and they can use for whatever they want once they reach the age if majority (21 in my state). I don't have to worry about making any of the final decisions on the use of it. I would of course encourage them to make a smart decision, but if they completely blow it, I'm fine with that too. I agreed to that possibility when I put the money in the account.

My kids are only 4 and 5 years old right now, but I plan to show them the balances on a regular basis to teach them about investing and growth.
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Old 12-28-2019, 05:45 AM   #7
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First of all, congratulations on providing both of your sons with a paid-for education. I assume they both appreciate the value, and the sacrifice you made for them.
Secondly, I am glad you realize you don't have any responsibility here to make "everything come out even". I'm not sure you even could make it all come out even.

As far as the disparity in the balances of the 529s, and the effect on those balances by the timing of the withdrawals and market activity, I would think the first decision to make is whether or not you need or want the money for yourself, or would you rather distribute that money to either of the children, or grandchildren as you suggest.
Does #2 son consider that balance as "his", or yours? Do you consider it his, or yours?

IMO, how you've presented those dollars to the sons may have an effect on how they feel, if they even know about the balances.

If you consider it your money, why not have a conversation with #2 son about his future plans for education. If he's really "done", why not cash it out, pay the taxes, put the balance in YOUR accounts, and pat yourself on the back for a job well done?
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Old 12-28-2019, 06:24 AM   #8
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We have a similar dilemma, but not with a 529. DD went to undergrad and we paid all 4 years and she has launched well and has a good six-figure job. DS decided not to go to college (probably the right choice for him, particularly at the time) and works in manufacturing... does reasonably well, living on his own with no financial support from us, some good emergency fund and retirement savings, etc.

Meanwhile, the six-figure taxable account savings that I had that was earmarked for his going to college is still sitting there... essentially in our taxable accounts.

View A.... we committed to each of them to pay for 4 years of college and still would if DS decides to go (and I've told him that many times)... if he doesn't go then that's the way the cookie crumbles and at the end of the day he'll most likely get half of that money anyway since we only have 2 heirs.

View B... we should somehow equalize him for the money that would have been spent on college... through help with a house downpayment or more should he ever decide to buy a house, or other sporatic financial aid... but OTOH we don't want him to become dependent on us financially. We could take one of our accounts that has roughly what we would have spent on college for him and make him the sole beneficiary and leave the other accounts 50/50 as they are now and that would even things out.

Whadayathink?

Interestingly, DD frequently advocates View B.
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Old 12-28-2019, 06:31 AM   #9
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You offered to pay for college (including grad school), for both kids. One chose not to attend grad school, so there is money left over.

That is the younger child's choice and not your burden. Put the remaining money aside for grandchild or cash it out for yourself.
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Old 12-28-2019, 06:41 AM   #10
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pb4uski: I do see some similarities here, but also some differences. I would personally take View B. I think we either invest in our kids or we don't. We shouldn't be holding the carrot over them, and trying to push them down the path we want for them. If Child A goes to college for $100K, and Child B chooses not to go to college, I think a similar $100K investment into Child B's life is appropriate. That could help finance a house, a business, or something else that will enrich their life.

EDIT: Just wanted to say that I am not accusing you or anyone else of not investing in your kids, or that you are forcing them down a path. That was more of a general observation.
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Old 12-28-2019, 07:34 AM   #11
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I did the same thing with our two children. I contributed the exact same amount to each of their 529's and our second ended up with a little more than the first due to the timing of the market.


Since I contributed the exact same amount for each I didn't feel the need to make any adjustments due to the difference in market performance.
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Old 12-28-2019, 09:28 AM   #12
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I have two boys. My oldest graduated four years ago (with a Masters) and my youngest just graduated two weeks ago. We established separate 529 accounts for each boy when they were young. From these accounts I paid their tuition and all expenses so they graduated with no debt. As an aside, the PROFITS in each plan paid for about 1.5 years (tuition and expenses) of a four year degree. Both have excellent jobs.

I have a year of graduate school tuition and expenses left in my oldest's account and just a small sum in my youngest's account. I am keeping both plans alive for another 5 years. Whoever needs the money for a "qualified educational expense" in the next five years will get it and I will transfer between accounts as needed. At the end of 5 years I will probably withdraw the balance from both accounts (pay the penalty) and split the sum evenly as gifts to the two boys.
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Old 12-28-2019, 09:44 AM   #13
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Originally Posted by phil1ben View Post
I have two boys. My oldest graduated four years ago (with a Masters) and my youngest just graduated two weeks ago. We established separate 529 accounts for each boy when they were young. From these accounts I paid their tuition and all expenses so they graduated with no debt. As an aside, the PROFITS in each plan paid for about 1.5 years (tuition and expenses) of a four year degree. Both have excellent jobs.

I have a year of graduate school tuition and expenses left in my oldest's account and just a small sum in my youngest's account. I am keeping both plans alive for another 5 years. Whoever needs the money for a "qualified educational expense" in the next five years will get it and I will transfer between accounts as needed. At the end of 5 years I will probably withdraw the balance from both accounts (pay the penalty) and split the sum evenly as gifts to the two boys.
By the way, a little sidetrack for how to pay for graduate schools.

I have filed taxes for my 2 kids since their young ages. By the time one child is ready to go to graduate school, the tax status is independent with a low paying job. The FAFSA EFC number showed $0, and subsequently the government granted free tuition, and work study grant. School also provided small scholarship. Basically the 2 year graduate school was almost free.

So, if your child is also filing as independent, living away from home, he can also try filing FAFSA and get similar benefits.
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Old 12-28-2019, 05:27 PM   #14
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Originally Posted by pb4uski View Post
We have a similar dilemma, but not with a 529. DD went to undergrad and we paid all 4 years and she has launched well and has a good six-figure job. DS decided not to go to college (probably the right choice for him, particularly at the time) and works in manufacturing... does reasonably well, living on his own with no financial support from us, some good emergency fund and retirement savings, etc.

Meanwhile, the six-figure taxable account savings that I had that was earmarked for his going to college is still sitting there... essentially in our taxable accounts.

View A.... we committed to each of them to pay for 4 years of college and still would if DS decides to go (and I've told him that many times)... if he doesn't go then that's the way the cookie crumbles and at the end of the day he'll most likely get half of that money anyway since we only have 2 heirs.

View B... we should somehow equalize him for the money that would have been spent on college... through help with a house downpayment or more should he ever decide to buy a house, or other sporatic financial aid... but OTOH we don't want him to become dependent on us financially. We could take one of our accounts that has roughly what we would have spent on college for him and make him the sole beneficiary and leave the other accounts 50/50 as they are now and that would even things out.

Whadayathink?

Interestingly, DD frequently advocates View B.
As far as that goes; I would give him a bit extra - when it feels right. In other words, you have a certain concern about him being independent, so maybe hold off. If he saves a certain (respectable in your eyes) percentage for a house down payment, you could increase that, but you don't need to let him know ahead of time.

With regard to placing him as a beneficiary on an account; sometimes that does not work out the way the parent intends. That particular account is drained; or conversely the estate is drained (unexpected medical care) and DD gets nothing. You may just want a slightly unequal split of the estate?

Personally, I have six. While I would have wanted an even distributions, it doesn't quite work out that way - but things tend to balance out. One refused college, but lived at home much longer. Another paid his own way; but got a nice wedding gift, and a gift for his first child's education. We paid a lot for the education and towards the wedding of a third, we won't be making him any more significant monetary gifts barring a change in circumstances. Another one was very helpful with taking care of my father (I keep trying to gift him $, he keeps refusing. Perhaps help with a house down payment here.)

You have been a good parent to both. They realize it, and it will work out.
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Old 12-28-2019, 06:14 PM   #15
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We told our sons we were willing to pay for the equivalent of 4 years at an in-state school. If they went longer or to a more expensive school, then they would have to fund that. We considered the 529 accounts as ours and never shared the details with our sons. We viewed the accounts as merely a tax efficient tool to help accomplish our goal.
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Old 12-28-2019, 07:03 PM   #16
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Pb4uski: I like option b. You never know, he might decide to go to college someday. My 41 year old son is back in college finishing his degree finally. He works for the college and took a class for free. He actually studied and made a good grade. Totally different from when he went in his younger days.
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Old 12-28-2019, 07:15 PM   #17
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Have a similar situation. DD1 did not go to school. DD2 did. DD2 got approximately $100K and left school with no debt. DD1 needed help. As explained in other posts, we helped her with a house. The money is pretty close and we think it's good enough to call even.

To the OP, I would say that you provided education. You're even.

Pb4uski, I think View B works. Hold out for education, but somehow segregate enough money to feel you've been fair. That may not come until you pass or you may help him with a house or some other investment like funding an IRA.
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Old 12-28-2019, 11:33 PM   #18
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Quote:
Originally Posted by pb4uski View Post
We have a similar dilemma, but not with a 529. DD went to undergrad and we paid all 4 years and she has launched well and has a good six-figure job. DS decided not to go to college (probably the right choice for him, particularly at the time) and works in manufacturing... does reasonably well, living on his own with no financial support from us, some good emergency fund and retirement savings, etc.

Meanwhile, the six-figure taxable account savings that I had that was earmarked for his going to college is still sitting there... essentially in our taxable accounts.

View A.... we committed to each of them to pay for 4 years of college and still would if DS decides to go (and I've told him that many times)... if he doesn't go then that's the way the cookie crumbles and at the end of the day he'll most likely get half of that money anyway since we only have 2 heirs.

View B... we should somehow equalize him for the money that would have been spent on college... through help with a house downpayment or more should he ever decide to buy a house, or other sporatic financial aid... but OTOH we don't want him to become dependent on us financially. We could take one of our accounts that has roughly what we would have spent on college for him and make him the sole beneficiary and leave the other accounts 50/50 as they are now and that would even things out.

Whadayathink?

Interestingly, DD frequently advocates View B.
I would do option B. A down payment on a house would be best. It's good that your DD has that sense of fairness.

We helped our daughter with the purchase of her 1st home. In fact we pushed her into it when we happened to spot a deal at a ridiculous price after the housing bubble burst.

When it was my younger son's turn to buy his home, we offered the same money although he did not need it. In fact he refused at first, not knowing how well off we were. I told both of them I had the same amount for them and the intention was always to treat them the same way.
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Old 12-29-2019, 12:11 AM   #19
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About the question posed by the OP, I agree with earlier responders that the intention was to provide his sons with the education. Excess money due to good market return is not a windfall profit for the 2nd son to keep. I would save the surplus for the future generation.
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Old 12-29-2019, 03:32 AM   #20
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You can also count on that amount if either child, but especially 2d son, has an emergency need for cash. Let's hope it doesn't happen, though!

Quote:
Originally Posted by NW-Bound View Post
About the question posed by the OP, I agree with earlier responders that the intention was to provide his sons with the education. Excess money due to good market return is not a windfall profit for the 2nd son to keep. I would save the surplus for the future generation.
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