Using a Roth for a DIY 529(ish) Plan

[CRLLS]

Under your plan (which seems fine to me BTW) would GRADUATION be a "condition" or just a "suggestion." Upon your death, the Roth IRA would belong to the child's father to handle as he wishes.

Graduation is stated as a condition. I can always soften that up should it look close. That is the beauty of my plan. One can ease up on the conditions. I feel putting such a carrot out there gives some incentive from becoming a professional student. See the below quote.

Our DIY 529 is still in the formative stage. I am still working on the fine details as new things arise. I will state in writing our plan so there can be no misunderstanding in years to come. Right now, the 1st rough draft includes:

In the event of my passing before the money is fully paid out, the remaining money will automatically become their respective father’s “Inherited Roth IRA” with all of the federal requirements thereof. Should this occur, we cannot force you to follow our intentions with that money. It is our hope that you will with the same incentives.

We reserve the right to change the provisions of this plan as we see fit. We will do everything in our ability to make certain that the net result is no less than the amounts as stated above.

 

[CRLLS]

OP you said these kids are young. You are setting up seperate Roths in YOUR name? You cant do a Roth in their name without them having earned income. Unless Im misreading what you are saying

Understood. 2 are young, one is entering college later this year. The latter has been accepted to 4 of the 6 schools she applied to and still awaiting response from the other two. I am so proud of her for that accomplishment.

Yes, the Roths are in my name with their respective father as beneficiary. I will act as the gatekeeper, distributing according to plan at each milestone. In actuality, since I will be into RMDs without a need for all of that income, I expect that I will simply pay from the RMD money and transfer each milestone money back into my own Roth. The individual Roths are more of an automatic bookkeeping method to monitor their individual account growths and choices rather than a direct saving/payment source. I think that Sunset made me think along those lines.

 

[CRLLS]

I called Fidelity today. They confirmed that I can move money (I didn't ask about in-kind transfers) from one of my Roth accounts to another of my Roth account as often or as much as I want within any given year with it not being a taxable event or having a penalty. As a result, I moved forward and fully funded the 3 grandkids' pseudo-529 accounts this afternoon.

I want to thank everyone who said the same. I am now a happy camper. Next up is to invest them. They will be put into SPAXX, a government MM account, when the transaction clears. It has a 7-day yield currently at 4.97%. Not too shabby.

Thanks again.

 

[SecondCor521]

Thanks for the update.

In the future, if it is convenient, you can probably move assets in kind back and forth between the various Roth IRAs, which sometimes is nicer than sell-transfer-buy because the money stays invested.

 

[CRLLS]

Thanks for the update.

In the future, if it is convenient, you can probably move assets in kind back and forth between the various Roth IRAs, which sometimes is nicer than sell-transfer-buy because the money stays invested.

Thanks for the confirmation about in-kind. I suspect that you are right too. I have done several Roth Conversions via in-kind. I chose to fund the 3 Roths using actual dollars because I wanted the exact dollars to be what I had already promised for all 3, and to have an equal starting amount. Same day, same dollars if not the same investments as time goes on.

 

[SecondCor521]

Thanks for the confirmation about in-kind. I suspect that you are right too. I have done several Roth Conversions via in-kind. I chose to fund the 3 Roths using actual dollars because I wanted the exact dollars to be what I had already promised for all 3, and to have an equal starting amount. Same day, same dollars if not the same investments as time goes on.

Good on you for being equal that way. My parents behaved similarly and we appreciated it.

 

[Slim11]

Just be aware, wording on anything in your will has 0 impact on if or not it will be done. If these accounts pass to a beneficiary, that happens before the will or trust. Also, roths have a 10 year rule to draw down the account. I think this is new ( not 100percent on if its new or not). Just some things to consider. Also, if the father distributes the $$$ it counts against his gifts. I will assume that he is your son, if he isnt, I would leave it to your blood first. Just incase. I have sceen worse. And lived it.

 

[CRLLS]

Just be aware, wording on anything in your will has 0 impact on if or not it will be done. If these accounts pass to a beneficiary, that happens before the will or trust. Also, roths have a 10 year rule to draw down the account. I think this is new ( not 100percent on if its new or not). Just some things to consider. Also, if the father distributes the $$$ it counts against his gifts. I will assume that he is your son, if he isnt, I would leave it to your blood first. Just incase. I have sceen worse. And lived it.

Of course, TOD, POD and JOWROS accounts transfer outside of a Will or Trust. That is the purpose of naming beneficiaries on them. But thanks for the reminder. Roths do have a 10 year draw-down rule. The beneficiaries of these accounts are my blood (sons). If any remaining money is given to the child after graduation, then I agree may fall under the annual gifting limitations, However, according to the IRS, if the money is spent for tuition or medical then it is excluded. I plan on being on this side of the grass when the little ones go on to higher education. Heck, that's only 16 more years until they're out of college. I'll still be a spring chicken of 88 years old.

 

[CRLLS]

Good on you for being equal that way. My parents behaved similarly and we appreciated it.

Thank you for that.

 

[Slim11]

I got you, just making sure, sometimes the obvious isnt so obvious when your running crap through your head. I did a trust, for my kid, whos 12. I am 50, this is in case of bus next week. I dont plan on getting hit by the bus, but you never know. Good luck, and keep us updated. I learn a bit from everyhring I read. Then learn I knew less then I thought I did!

 

[SecondCor521]

However, according to the IRS, if the money is spent for tuition or medical then it is excluded.

Note that it is tuition only, not any of the many other college expenses (room and board, books, fees, etc.).

It also has to be paid directly to the school (or medical provider in the case of the medical exemption).

https://www.law.cornell.edu/cfr/text/26/25.2503-6