Set up accounts as gift location for kids?

[stephenson]

Hi All,

So, in the season's spirit, I wanted to give my two grown kids a larger gift than usual - we normally are a small gift family and will be continuing the small gift scenario, but I

Neither really "needs" anything and both are working and have savings and 401K/IRA accounts they contribute to.

I am not talking about $14,000 annual limit gifts, but somewhere/somehow to drop in a thousand dollars when I feel like it.

Here's the point - I don't want them to actually spend this money ...I want to enhance their "savings" in a manner that is reasonable and that they will let it ride.

Thoughts on options?

 

[jabbahop]

Maybe a Roth or 529 Ed account?


Sent from my iPad using Tapatalk

 

[pjm-7]

Do your adult children have mortgages? If you could find out who the lender is, make an additional principal payment for them.

 

[ivinsfan]

It's not much of gift if they can't decide what they want to do with it. If you say they are working and have savings just give them the money and trust them to do right with it, as they see fit, not as you see fit. ....

 

[GrayHare]

Do they have an investment account? You can mail a check to the investment company for deposit into their account.

 

[Sunset]

Money is fungible, so if you give a few thousand to their investment account (if you could), then they might save less.

I like the thought, as I'd like to do that for a grandchild, but cannot see how right now.

 

[38Chevy454]

I assume they have some financial institution that handles their current 401k/Roth/etc. Why not just open another after-tax account under their name, or contribute to their Roth accounts? The just send the check to that account and institution.

 

[jerome len]

The key point is TRUST. Do you trust your kids to do their "right thing" with the money? Just give them the money, explain how you would like it used or saved and trust them to do it. It sounds like you're good parents with good kids.......I'm the same and feel very lucky.

 

[stephenson]

Hi All,

Yeah - I get the trust your kids to do the right thing ...but, also recall how easy it is to spend money when you are "just starting out" (20-30s) ...so many things pull at one for money ...but, I also get the point about stashing money and it growing over time such that it is ready when one might need it (40-60s - 60 is old, but recall how late marriage and babies are happening now ...sons are 26 and 31 without wives or kids).

I kinda like the 529 thing, but can ya open accounts for grandchildren if there aren't any (yet)?

Have researched and understand that grandparent 529 account wont count for FAFSA comps, but funds released will count at 20% (for this reason some recommending using grandparent 529 for the last year of college). Parents ownership reportedly counts at 5.6% for FAFSA comps.

So, if we can open grandparent owned 529 for grandchildren of the future, then we could help children avoid FAFSA hit?

So, we're 62, kids are 26 and 31 without wives ... figure they COULD be with wife and child by 28 and 33 earliest (we would be 64) ... there is still time for us to transfer the money to the grandkids while there are in college. Percentage start working against us.

If we could do this, we would probably just use a date certain fund with a set point of about 2036 or so ...

Thoughts on this approach? Anyone done this recently?

 

[stephenson]

Answering my own question I think - I don't see any reference to being able to set up a 529 when there are no grandchildren ...guess that does make sense.

So, in our case, we could contribute to a specific account with perhaps son name on it, as well, and if a grandchild comes along, just convert it to a 529 (meeting annual limits, etc) ...would not count as a gift until we convert since it is in both our name and the name of the child?

 

[ivinsfan]

Hi All,

Yeah - I get the trust your kids to do the right thing ...but, also recall how easy it is to spend money when you are "just starting out" (20-30s) ...so many things pull at one for money ...but, I also get the point about stashing money and it growing over time such that it is ready when one might need it (40-60s - 60 is old, but recall how late marriage and babies are happening now ...sons are 26 and 31 without wives or kids).

I kinda like the 529 thing, but can ya open accounts for grandchildren if there aren't any (yet)?

Have researched and understand that grandparent 529 account wont count for FAFSA comps, but funds released will count at 20% (for this reason some recommending using grandparent 529 for the last year of college). Parents ownership reportedly counts at 5.6% for FAFSA comps.

So, if we can open grandparent owned 529 for grandchildren of the future, then we could help children avoid FAFSA hit?

So, we're 62, kids are 26 and 31 without wives ... figure they COULD be with wife and child by 28 and 33 earliest (we would be 64) ... there is still time for us to transfer the money to the grandkids while there are in college. Percentage start working against us.

If we could do this, we would probably just use a date certain fund with a set point of about 2036 or so ...

Thoughts on this approach? Anyone done this recently?

Uhh, you can't just give them the money and say,it would really make your Mom and I happy if you invested this for the long haul or even earmarked it for future kiddos expenses and leave it at that? From my understanding it's not even a large sum of money we are talking about here. I guess you don't trust them. You know part of dealing with life is making a money mistake or two so we can learn from it.

What's the difference if you give them cash or fund their IRA, they still need to learn how to balance the seduction call of spending to the satisfaction of saving. Do them a favor and let them figure it out for themselves.

 

[bingybear]

The "Money is fungible" is likely the right concept.

If you fund their Roth with them not aware, they could over fund it since they did not know you did.

You could set up a 529 with your kids as beneficiaries and they beneficiaries could be changed when grand kids come. But this would still be your account.

Other than paying a bill for them it could really be hard to give them money that they don't control.

Take something like Edelman's RIC-E trust, the beneficiary has 30 days that they can pull the money out. Crummey trust have the same 30 day issue, but don't benefit the recipient.

If you want to fund part of their Roth, tell them. Make sure they can have a Roth. Make sure they know (it has to go on their tax return).

But Money is fungible... does this mean they save less? maybe, maybe not.

Legally to give them a gift, they ultimately will have control with the possible exception of paying a bill for them. If I were doing this and wanted them to fund an Roth (assuming they can), I would give them the $ with the request that they use it the way you would like.

 

[stephenson]

The are both funding 401 and IRAs and are pretty thoughtful ... but young.

Ivinsfan - I understand what you are saying - I get it - however, I would rather their kids have a little additional money and my kids be put off a bit by my approach, than taking the risk my kids will "do the right thing" - guess I don't want them to learn with my money, but rather learn with their own.

Also considering opening a JTWROS account for wife/me/son 1 (etc) and funding it with index ETF ... avoids some capital gains issues. Then funding 529 out of it when/if there are grandchildren ...anyone used something like this process?

 

[ivinsfan]

Yes, I get what you are saying by your use of the term "my money". However, I know my responsible adult daughters would be more then a little "put off", by my basically saying here's some money but I'm tying it up for your own good, because I don't want you wasting it.

We farm and I know a few fellow farmers who won't bother setting up estate planning because they freely admit, I want to control everything until I die and my kids can just deal with it after I'm dead. One wanted to leave everything to his only son, who had no children, but somehow exclude the son's wife because he didn't want her to have any say over anything. This wife has never done anything to him, he just wasn't sure she'd "do the right thing" if his died first.

 

[lemming]

Can you still get paper shares of stocks?
Do they have a hobby or interest? Shares of Harley Davidson appeal to some-not to others. Or Ford Or Disney.
Or maybe a Krugerrand or two. (not the best investment possibly-but shiny)

 

[stephenson]

Been out of town ...sorry about slow response.

Continued reading on the topic ...

Since my kids don't have kids, it appears I can set up a 529 in my name as "participant" with myself as "beneficiary" ....seems to be the most flexible approach ...would roll to my spouse if I die before any future grandchildren are identified ...

 

[RE2Boys]

Just relating to what my parents did some 25+ years ago.

They purchased US savings bond that were registered jointly some with Dad and my name, some with Mom and my name but used my SSN on all the bonds. I think they planned that being joint, they could cash them if need be. Did same with all my siblings. I didn't even know they existed until my Dad passed away and Mom passed them on to me and my siblings. Since I considered it my parent's money, I just sat on them thinking in case my Mom needed the money for whatever.

When Mom passed away, I found another batch registered jointly with her name on them, again with my SSN. They have appreciated considerably and in next 7 years or so, I've got some tax planning issues with the bonds maturity and accrued interest. Nice problem to have.

Since there was no tax reporting involved until maturity and redemption, it was easy to hide what they did. And with the low interest rates of the last decade, it has been a great investment.

Current interest rates for savings bonds (EE or I) don't make this such a good current option, maybe things will change in the future. My current thinking is that I'll probably never touch my Roths so they will likely be passed on to my boys.

 

[bingybear]

Been out of town ...sorry about slow response.

Continued reading on the topic ...

Since my kids don't have kids, it appears I can set up a 529 in my name as "participant" with myself as "beneficiary" ....seems to be the most flexible approach ...would roll to my spouse if I die before any future grandchildren are identified ...

If your goal is to set up education funding for YTB grand kids and want to keep control of the $, this is a good approach. Typically you can change the beneficiary up and down the family tree with the flick of a pen.

 

[youbet]

I am not talking about $14,000 annual limit gifts, but somewhere/somehow to drop in a thousand dollars when I feel like it.

Here's the point - I don't want them to actually spend this money ...I want to enhance their "savings" in a manner that is reasonable and that they will let it ride.

Thoughts on options?

The only reason I can think of for you to want to give money to your sons, but in a way where you feel they won't blow it, is so that you save on income or estate taxes. Otherwise, especially since you're talking about relatively modest amounts of money, just set up accounts in your own name earmarked in your own mind to be given to your sons when an appropriate event or time arises. Deposit money when you feel the urge. Manage the money with an AA that reflects your best guess as to when you'll gift the money to them. When the time comes, give them all or part of the money as appropriate.

The idea of gifting money to kids to improve your own tax situation but still retain control often creates a rocky road. I sense this is the case for the idea of creating 529b's for yet-to-exist grandkids. What if your sons don't have kids? You'll pay a 10% penalty to withdraw the money unused for college expenses or you'll use it for someone else....... Your third cousin's (on your mother's side) kid you've never met? The kid that delivers your morning paper?

 

[Tekward]

I did something this past year which might be helpful; I offered to pay for the Dave Ramsey Money Makeover course for any of my three daughters that were interested. I only had one take me upon it so far, but she is the one that needs it most. I've told her I'll give a bonus when she finishes the course. Sort of a "teach a girl to fish" type thing.

 

[Bestwifeever]

We are giving each of our kids a couple of thousand this year as a surprise--not a huge gift but a nice chunk of change imo. We did a little less for the first time last year and they were gobsmacked. One needs a new roof so it might go toward that, the other has pricey kids' school so it might go to that. Or maybe they will buy a piece of furniture or go on vacation--they can do what they want. Both have decent jobs and are saving toward retirement and have college funds set up already, but if we wanted the cash used only for that, we'd just keep it all until they needed it (or it came to them in our estate--which should be a decent size but nowhere near big enough to need tax considerations) and get them something else as a gift.

But I am sure the OP's kids will appreciate your gift, strings or not!

 

[stephenson]

Great thoughts, all ...

I am trying to do another thing, as well ... make them THINK about the various options for investing, for passing money on, for planning as a necessary part of living with money and needing money, etc.

I know it is a bit confusing - I want them to be a bit confused so they will think and consider their own options for their futures.

The 529 system looks like it is set up to allow changes of beneficiaries easily and quickly with lots of flexibility - the only real down side is if they don't have children .. then there are penalties and tax to be paid. I am thinking I have some time - and if I die, my wife then has some time to either eliminate the account and pay the taxes and penalty (neither kid has kids) or align the total amount to the kids that only one of the kids has ...yeah, playing some probabilities.

If I were to assign the kids as beneficiaries, and they didn't have kids they could spend the money on their own education (positive), but if they do have kids the amount would be included in part of their FAFSA computation.

I haven't pulled the trigger on any of this, yet .. did go part way through the Fidelity process yesterday on line - very easy ...

The key question for me may be: Do I assign myself as beneficiary or each of the kids - it would seem like more of a gift and worth the FAFSA risk to this ...

 

[stephenson]

Done more reading ... IRS Pub 970 is pretty clear on most of typical 529 questions .... the definition of "family" of a beneficiary is quite broad and will cover just about any family situation ...

 

[Joylush]

This year I wanted to give large gifts to my two adult children as well but wanted to encourage savings. So I offered to match dollar for dollar whatever contributions they make to their 2016 ROTH accounts.

 

[stephenson]

Hi All,

Wanted to summarize and close out what I finally did - not saying it is "the" answer, but it seems to answer most of what I was trying to do.

I was not trying to teach my kids what to do with money, but rather how to analyze and consider options for meeting a need, or giving a gift while balancing federal tax opportunities and restrictions ...at least this is what I sounded like while I was discussing it with them.

So, I set up a 529 Unique (New Hampshire is the sponsoring state) with Fidelity with $1000 to each of the two sons. I am the "participant" (owner) and I made each of them the "beneficiary." I walked them through my "whys" and how the account would roll to my wife when I die, how I/she would manage the account, add money when available and appropriate, how their role as current beneficiaries works and how the beneficiary can be reassigned easily, how FAFSA treats the accounts based on who owns and is the beneficiaries, and finally why I chose the Fidelity Aggressive Index fund (offered as one of the few options that are characteristic of 529s).

While neither have children, they appeared to be very pleased and interested in learning more about the system and how to use it for future benefit - maybe am kidding myself, but this sounded positive to me

Thank you, All, again, for the great comments - I hope my experience will be helpful to someone else, whether they choose my approach or not.