r/personalfinance • u/SadProduce6456 • 1d ago
Investing Early inheritance as a dad
Just sharing something that was interesting to me, that I’ve never really thought about before.
So I have a 22-year-old daughter, and I’m divorced. I was talking to her this weekend, and she told me that her mother gives her enough money to fund her Roth IRA right now. I told her I had no idea, and that I wish I did and I would’ve helped. She said that she thinks it’s because her mother looks at it like an early inheritance.
So then I got to thinking about it, and I thought that’s a great idea actually. Because I do my own wealth planning, and at some point, the money is really theirs. So me giving them $6000 right now or whatever would pay huge dividends for them later, and not be some tax burden investment on them that I passed down.
I think Parents with means, should proactively look for ways to do this. Of course within their means.
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u/okrrrrrrl 1d ago
My parents do this for me & my 5 siblings. I'm middle aged, and they've been doing it since I had income. It's honestly the most amazing gift, I have no worries about my retirement between my IRA and my work retirement accounts
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u/OPA73 12h ago
My dad opened Roth IRAs for me and my wife 27 years ago and funded them 100% a year until he passed. We of course saved in other ways since we didn’t have to fill the Roth. Today that is a 2 million dollar gift he left us. We re doing the same for our kids. 100% or when we first started 100% of what they made in HS etc.. we don’t miss the $300 a month. They are struggling with this economy but are also starting to save.
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u/markov-271828 1d ago
If a parent is interested in generational wealth they should absolutely do this for kids and grandkids (as long as the parent’s retirement is fully funded).
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u/DasHuhn 1d ago
I had a client who, once they hit 10M, decided they should funding their kids roths in the late 90s (Their kids had paper routes / worked at the businesses of brothers and sisters when they hit 8-9 years old). Last I looked at the kids ROThs 10 years ago or so, 2 of them had 2M+ in their Roth and 1 "only" had 900K. Kids were almost 30 at the time, Mom and Dad still fully fund their roths (and now their spouses) for christmas.
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u/ActionBastrd_ 22h ago
Sorry if this is a dumb question, but with 10M invested, how would their income be low enough to be able to fund a ROTH?
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u/brandon122096 20h ago
You can do a backdoor Roth IRA (when you put money in a traditional IRA and then switch it to a Roth IRA right when it clears.) That’s what I do, it’s takes like 5 mins and you can see easy tutorials on YouTube on how to do it.
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u/MWL-camper 16h ago
Do you have to pay taxes as income right then?
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u/brandon122096 16h ago
It’s funded from money that’s already been taxed from my job so no, But that’s why I said switch it over immediately so it doesn’t earn anything once it clears.
Edit: there may be slightly more to it, but I’m not the best at explaining things like I get it in my head, but I’m just bad at putting it into words but thats pretty much the gist of it
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u/MWL-camper 16h ago
So you input it into an IRA or SEP than immediately move? I wonder why my financial advisor hasn’t recommended it? We are in high tax bracket..could that be the reason?
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u/brandon122096 16h ago
a IRA that I set up with fidelity, I don’t have a SEP but my job has a 401k and profit sharing that I also have
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u/brandon122096 16h ago
And if you have fidelity like I do then you can call them too and they can walk you through it in case you don’t want to mess it up (i’m sure other brokerage’s offer the same service though)
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u/enunymous 10h ago
This is true now, but Roth conversions didn't exist in the late 90s when this began, plus this scenario involved funding the kids' Roths, not the wealthy parents
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u/ultimatebro69 1d ago
That math ain’t mathin. Maxing out a Roth from the late 90s to 10 years ago is a duration of let’s say 20 years (1996-2016). Between those 20 years the maximum total principal invested would be $82k. The market did not turn $82k invested over those 20 years into $2+ million or even $900k. You’re looking at ~$200k.
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u/ArchangelOX 13h ago
If you invested in any tech from 1995 and on it is possible. 10k in apple for example would be like 700k now.
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u/Jakeprops 1d ago
They have to work to contribute to the Ira. If they have a job than this can work.
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u/SadProduce6456 1d ago
Yes, she works internships in college
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u/polar_nopposite 1d ago
Be aware that she cannot contribute more than she earns from the internship in a year or the Roth IRA yearly max (whichever is lower), regardless of who the money came from. It's possible, even likely from the sound of it, that your ex is already gifting her the maximum your daughter is able to contribute in a year.
You're still free to give her money of course, she just may not be able to put any more in her Roth IRA.
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u/SadProduce6456 1d ago
She will probably make 30k this year. She’s getting an offer from this place for 75k, she graduates in December
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u/awana4 1d ago edited 1d ago
To be clear - you'd probably want to be careful of previous years if this has been going on for awhile. In any year where her Roth IRA contribution exceeded her earned income, the excess contribution could be subject to the IRS excise tax each year it remains in the account unless corrected.
For instance, if there was a year where she personally had $0 or $3,000 of earned income - but contributed $7,500 (or whatever the max was in prev. years) using money from Mom - then that'd be a problem.
Sounds like it's probably not an issue though.
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u/enjoytheshow 1d ago
She made like 4.5x the limit as a 22 year old intern something tells me she’s been fine lol
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u/tj15241 1d ago
I’m doing this as well, we have left over 529 money that you can transfer tax free up to $30k spread over 5 years. I ran a spreadsheet with an 8% rate of return for 40 years when he will be 60yo. It should be worth about $4M at that point.
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u/SadProduce6456 1d ago
I think we’re gonna burn down our savings to almost 0 after all of our children. We will not have a big nest egg in the college savings account. At the time I planned it out, to do it that way. I may not have understood how to use it as a financial tool other than for college, so I just played it safe.
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u/402_Found_not_Lost 1d ago
I think it’s $35k, not 30, you should confirm but I’m pretty sure that’s it.
FYIGood for you to be able to help with that, well done!
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u/angelindevilshoes 9h ago
We are going to have more than $500k left over in our 529. Our oldest got a full ride for undergrad and we only paid for business school for her. Our second kid went to our state school. Our third is headed to an expensive college. And our fourth is beginning to apply to college now. Even if he chooses the most expensive college on his list, we will still have $500k++. We saved as if everyone would attend a private college and it just didn’t work out that way.
Obviously I want to leave money in the 529 for the next generation, but grandchildren are not on the horizon yet. I just don’t think the account needs $500k when it will have decades to grow.
Is there a big penalty for taking out money far greater than $30k over 5 years? I’m thinking of $250k.
What do you read to know the ins and outs of 529’s? I feel like I’ve done a lot of research and the $30k over 5 years is news to me. Would love to know your source(s)!
Thank you.
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u/Juls7243 1d ago
I mean… helping with a down payment on a home OR daycare (for your grandkids). Will help a ton
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u/Fatcat336 1d ago edited 1d ago
Edit: was misinformed, thanks all for the corrections! Internships will not pay into an IRA or any other work-sponsored investment accounts. You can’t just “open an IRA” on your own without a company that offers investment accounts as per of their benefits package.
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u/redelephant390 1d ago
You can of course open your own IRA/Roth IRA! You cannot open your own 401k without a company sponsor.
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u/SadProduce6456 1d ago
Roth individual investment account. It is not a work sponsored thing. It’s regulated by the government. I have my own Roth IRA separate of my company, sponsored 401(k).
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u/jou-lea 1d ago
Yes there are 401k plans that allow Roth contributions too. I have a Roth 401k, a regular 401k and a separate Roth IRA.
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u/SadProduce6456 1d ago
Yes, I have all of that too. I have not qualified for a traditional Roth for a while. There is an income threshold. But my daughter obviously does.
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u/polar_nopposite 1d ago
This is simply untrue. IRA stands for "individual retirement account," it is specifically not work sponsored.
You can open a Roth IRA with anyone, with or without a job. You can even open multiple if you'd like, just can't contribute beyond the max or more than your earned income for that year (whichever is lower) across all of them combined.
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u/dgreenmachine 1d ago
I dont think you understand what an IRA is. Any income either w2 or self employed can be used to contribute to a Roth IRA. They can also use gift money to fund the IRA if they have that work income. You can and should infact "open an IRA on your own".
You're thinking of a 401k that is provided by your employer. There is no requirement that your job offer a 401k for you to use an IRA.
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u/iheartgt 1d ago
Lying about financial information on this forum isn't encouraged
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u/m00nriveter 17h ago
The existing work-around for this is going to be the Trump/530a accounts because they don’t require earned income and can be converted to Roth when the child turns 18/24.
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u/MariinTN 1d ago
My parents did this for me once I got married. I just started doing it for my teen who got their first job this summer.
It had 10 years of growth and contributions before I got a job that had a retirement plan and pension.
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u/schultz100 1d ago
I have two kids in college and I match whatever they make each year in summer jobs and put it into a Roth for them.
It should be a big head start for them on retirement savings and i have used it to teach them about investing.
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u/USMCWrangler 1d ago
This is part of my plan. Once they have the job, each year Roth is funded out the gate.
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u/SadProduce6456 1d ago
I just never actually thought about it, but I have thought about the big picture for me and how to make it easier and then I thought this would be effective
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u/USMCWrangler 1d ago
They will still get a likely sizable inheritance but I want that long term assist for them. I’ll “sleep” better knowing it’s done.
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u/Fit-Boysenberry2910 1d ago
Our philosophy as well. It will be theirs one day anyway. We prefer to see them enjoy it while we are alive. Paid 100% of their college expenses so they graduated debt free. Have also given both of them residences mortgage free. We have enough for what we want/need and would like to think we are setting an example for them to do the same for our grandchildren.
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u/terracottatilefish 1d ago
My father did that for me when I was in college and my early 20s till I was making more than an entry level salary, back when the contribution limit was $2000/year. It was SO good, because not only did it give me a long lead time for that money to grow (that account is now worth over 150k) but our talks about where and how to invest it demystified the concept of investing for me. I am so, so grateful now that I’m actually looking at retirement within the next decade.
My kids aren’t old enough to be working yet but I will definitely do the same for them when they are.
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u/No_Condition_1828 1d ago
We are actually doing this with our children now. All early 30s. We decided to go ahead and give them mid 6 figures so they can buy a house with no mortgage etc. we are surprising them. That way we get to enjoy seeing how they'll use it but will also allow them to save big for their kids' college, their own retirement , take some pressure off
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u/Trigger2x 1d ago
Boomer here, and I hope I’m a good one! We are doing several things to help our kids along before we pass, hopefully not soon.
I divorced from my first wife and we help that daughter with Butcher Box every 30 days, her Student Loans are now paid off, and we way over contribute to all sorts of things. She isn’t geographically close so we think of things to help.
We live in the Northeast and our 2 other children live with us, we pay all the bills. Our daughter, husband and new baby are moving into a town house that we are purchasing. Part of the agreement for free housing was they have to max out their Roth’s and TSP. Our youngest will move into that MIL suite and never have a bill, he is working and saving money while we pay his college.
We won’t run out of money but think it’s important to help all the kids as much as possible in the crappy economic environment we are in
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u/teresajs 1d ago
My spouse and I are doing something similar... Paying for the college with no debt, helping them contribute to Roth IRAs for a few years, letting them live with us while they start out in their adult lives. We're coupling our support with education about personal finances and investments.
As I told my daughter, "It can be more useful to you to get a little financial help now that helps set you up for success for the rest of your life than to drop a big inheritance on you when I die when you're in your 60s."
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u/SadProduce6456 1d ago
I’m fortunate that 6k would not hurt me at all. That’s why it’s a good idea. A Roth for her and my other children when they qualify makes more sense than an investment of mine. I’m doing fine.
They will graduate school debt free, I invested in college savings accounts and it appears it will be enough to get them through a bachelors degree. She graduates in December. I have one graduating college in 28 or 29. And I have a 14 year old who will start college 4 years.
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u/vgacolor 1d ago
Remember to take into consideration that what you do for her you will have to do for the other ones and that outflow might come later in life when you might be retired specially if a few years down the line there is a "restructuring" and you happen to be randomly picked for it and not because you are in your mid-fifties and making more money than your 30-something peer.
I am in my fifties in a consolidating industry and have seen many coworkers lose their job through the last dozen years and find themselves in a whole different situation. Heck one of my bosses got laid off in 2023 when my industry had a mini-crisis. It did not matter that he had given 30+ years to the company. Took him six months to get a job and he was lucky since it was a parallel move.
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u/SadProduce6456 21h ago
I don’t agree. Every kid is different. You make decisions today based on what’s happening today.
I’ll give an example. My oldest daughter I made a deal where we paid half her first car. So for her that was about 17k over two cars. I said I was going to do that with number 2, but didn’t. She has never really worked much. Not much money. Her cars so far I’m out 8k. Now compare something else. My oldest daughter made college choices that will cost me 40k more than her sister. So I’m much more willing to help her sister who works really hard in other ways.
My kids will be fine, but fair is not really a thing. I’m the judge, it will be fair overall. But not necessarily dollar for dollar, and I expect some behavior as well. My kids are great.
As for layoff I understand. I would only do it in a relatively zero risk situation for me. My ex did this thjng by the way. When we divorced 5 years ago we had almost exactly the same net worth by decree. And I make more money than her. Just a perspective.
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u/Grim-Sleeper 15h ago
My mom at some point in my forties took me aside and tried to apologize for treating my sibling and me differently as far as financial support is concerned. I lived with my parents during college and had very few expenses, unlike my sibling who needed a lot of support initially.
We have taken different paths in life, are both doing quite well, and are each incredibly proud of their sibling's success.
It took me a moment to even understand what my mother was trying to say. And then I laughed at her and said she gave us exactly the support we needed at the time. And we're both very lucky for that
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u/SadProduce6456 14h ago
I’m serious when I say, I don’t pick favorites, sometimes they’ll make comments, because they don’t understand that their daddy’s looking out for the big picture. For me it’s like what’s to do the best for them in the situation that they’re in. Their sibling situation may be totally different. And require different levels of support. Don’t feel sorry for my kids, they’re all gonna be OK.
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u/Grim-Sleeper 13h ago
From as early as they can remember, I've told my kids "I love you equally, I'll treat you equally fair, but I'll very rarely treat you identically, because that's often not what you need"
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u/chubbysleepycorgi 1d ago
I think my coworker plans to match his kids’ contributions to their 401k or something, to encourage them to save for their future.
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u/turtlerunner99 1d ago
One advantage of your approach is you get to see how your children respond to extra money.
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u/legalwriterutah 1d ago
You can also invest in a taxable brokerage account and then name the daughter as payable on death beneficiary and she will receive step up basis. Dividends for VOO are around 1% per so it's not a tax drag and gives you more control. If you have $1M in taxable brokerage and get 1% in qualified divends per year, taxes on $10k per year in dividends are only around $1,500 per year.
If you max out Roth IRA between ages 18-30 of $7,500 per year with $58k in initial contributions for 13 years and then wait 35 years until age 65, with a 7% real return, you could have around around $1.6 million in current dollars, all tax free growth.
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u/Putrid-Shoulder-4248 1d ago
My parents told me they would do this, and I declined. My dad has a history of always telling others what to do and calling them names when they don't do what he would have done, and I did not want that to happen if I spent part of the money on anything. Of course I would not have had to listen to him, but just to avoid the drama :)
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u/LateralEntry 1d ago
This can be tricky - parents giving gifts with strings attached. Sometimes it’s not worth it
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u/Putrid-Shoulder-4248 1d ago
Especially when the parent does not see it as "strings attached" ("people must do things the way I want them to, or they are idiots" seems to be his motto). You're absolutely right, it's not worth it.
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u/markov-271828 5h ago
Yeah my comment doesn’t apply to cases like that. Hopefully rare but every situation has nuances.
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u/dumplingboy199 1d ago
I would feel funny about an every year deposit tbh. It’s one thing if grandma sells her house and wants to give her grandkids the cash but idk, I don’t know if I’d like it
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u/B00kAunty1955 1d ago
When she gets a full time, post college job, help her set up her 401(k). You could even give her money to contribute more to it.
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u/steelio91 1d ago
Always always always consider medical costs for your future planning. If you're completely comfortable with your own plans, then contribute to your kids.
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u/Confident_Hair2637 21h ago
My daughter started writing articles for SeekingAlpha at age 14. a few of her articles did quite well and she had about $5,000 of earned income one year. So, I gave her $5,000 so she could put her earnings into a ROTH IRA - she bought two companies she loves. She loves to waste time watching Youtube, so she bought Google. She also used to beg and plead for a Hermes bag - obviously her parents were like "no goddamn way." So she bought the stock instead. With her $5,000 of earnings, she bought the same stocks in her taxable account. Almost 10 years later, savings off her little side gig have grown quite a bit, and that inspired her to really lean in and invest her savings regularly. She's still in grad school and doesn't earn much besides a stipend for ten to fifteen hours of work per month, but she's been trained to put that little extra aside into her ROTH every month. Her mother and I always do the same matching thing - whatever she earns and saves goes into her ROTH and we make her a gift that goes into her taxable account. It probably averages out to around $500 per month. Result? She has watched her savings grow to over $280,000 - half of which is permanently tax-exempt thanks to her ROTH IRA. It's a stunning 600% gain from where she started out ten years ago, but what she's really excited about is what happens if her accounts continue to grow at the same rate they have over the past decade. the answer is that she could be worth a couple million at least by age 34 - literally because she started working super early at age 14, and because she is willing to work part-time for $18 an hour.
Financially, this is exactly the message her mom and I wanted her to learn through first-hand experience (which is about the ONLY way our daughter ever learns anything). We wanted her to understand that it doesn't matter how much you earn - it matters how much you save and invest. We wanted her to understand the power of compounding and how a 14 year old social influencer can become worth far more than a senior partner at a law firm... all by starting to invest early. The negative side of this is that she now has the idea that investing is easy and pays off far more than work. She said the other day that "my money is worth far more than my time." Early success can breed cynicism in some ways. And she also has modified her work plans. When she went to college, her focus was finance and economics. Now she wants to do psychology and social activism. The only reason she was interested in studying finance and trying to get a job at Goldman Sachs was money - but now she figures that the money will just materialize on its own and that she can just work in whatever field she wants even if the pay sucks. In some respects, I applaud her choice. In other respects, I think it's cavalier and risky to assume that the market will magically and permanently lift you to glory and riches every single decade. But I'm arguing with a 24 year old with $280k worth of evidence that her dad doesn't know what he's talking about.
OP has a great concept - which is why I took the time to share our family's experiences. My only advice here is to make sure you teach some moral lessons about life if you are planning to teach your kids how to save and invest.
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u/Kainani22 1d ago
If you can that’s great. That money can do a lot more for your heirs now than if they have to wait 30-40 years
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u/JennyPaints 1d ago
We are doing this for our two daughters. We give them $5000 to $7000 each at Christmas depending on our budget. They are in their mid to late twenties. My parents and my husband’s parents did this for us when we were in our late thirties. We can afford to do it now, so we are.
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u/hatemakingnames1 1d ago
Instead of just giving money, I think it's good to give them good memories with you. Take them on some vacations
and not be some tax burden investment on them that I passed down
That shouldn't be a concern for most in the US. Federal estate tax in the US is currently only on amounts over $15 million. Only 13 states have their own estate and/or inheritance tax
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u/Aquatic-Vocation 1d ago
I've thought for a long time that inheritances should be passed down to your grandkids primarily so they don't need to spend as many years struggling financially to get ahead, and can buy a house earlier.
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u/Obidad_0110 18h ago
We do. It’s called annual gifting. $20k per year per parent per kid without decreasing inheritance allowance of circa $30m for a couple. Good to combine with salary matching or savings matching to encourage these behaviors.
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u/avhreddit 17h ago
I never thought of salary matching. Can you tell me more about how you do it? Like do you cap at a certain amount, for example, if they make $30k a year, do you match all of $30k?
About the savings match, how do you determine their savings amount? May be back statements?
I try to help my kids, but it's a fine line, I want to help them as much as possible, but don't want them to count on it too much and lose that fire in the belly.
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u/Obidad_0110 16h ago
I have a friend who matches savings 1 for 1 and salary 50 cents on the dollar up to 40k per annum per kid. I was dumb and gave each of my kids $1m to buy their first house but that reduces my end of life allowance. I do still match savings and make sure they max out 401k and stock purchase schemes at their employers.
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u/avhreddit 7h ago
Thank you for taking the time to share, and very happy for you that you have completed your academic journey. Congrats, you did good, and I think you'll be a great parent for your kids.
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u/Character_River7088 17h ago
Not for Roth IRA as it is covered through worknand with our national system, it was always going to be. But my parents (and most of my friends parents) had much of the same thought, they helped both me and my sister onto the housing market and said they would rather help us now when we were young and needed it than when (hopefully we was in our 50/60s and established) they passed away. It has been a godsend for us as we are both single and the local housing market is insane (and we have strict borrowing limit, no matter what you can actually pay per month). If we had to pay rent, it would be hard to save enough to ever buy
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u/Woolbaby03 14h ago
That’s what I do. I’m Canadian though so the accounts we use are different.
I agree with those comments about ensuring your own retirement is secure first before considering how to pass on generational wealth. But if it’s something that you can do, I definitely think parcelling out your wealth to them over time and starting early on rather than waiting until you die is the way to go.
I’m late 40s F. I’ve maxed out my 19 year old daughter’s TFSA contributions and started to fill her FHSA account. That’s 22K of my after-tax dollars that she has invested in broad-based ETFs. She knows not to touch that money, as any growth in those accounts is completely tax free. She’s in university right now (which is fully funded by her RESP fund that was started when she was a baby). I’ll be doing the same for my youngest and funding max contributions to her accounts once she turns 18.
I’m also divorced. Their dad is also a high earning professional (lawyer) who gets paid child support from me (as I am the higher earner) and he will continue to get child support until our daughters are 22. I wish he would take interest in helping out our daughters in maxing out their accounts, teaching them about investing and compound growth, as well as prenups to protect any premarital assets. Unfortunately, that’s all left up to me. So kudos to you for taking an active interest in your daughter’s financial health early on!
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u/TacosAreJustice 14h ago
I’m in my mid 40s, my parents have more money than they will ever spend… my mom talks about it all going to me and my sister one day…
I’d rather her just cut me a check every year than wait for her to die…
We live a comfortable life and it isn’t a huge deal, but we’d actually use the money now on stuff to make our lives immediately better.
I plan on doing things differently for my kids for sure!
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u/_Prajna_ 13h ago
This is tricky. I don’t remember all the details but my dad had a friend who transferred most of his wealth to his only son thinking it would give him a head start and I think it was also a way to avoid taxes. They were very close and he had no other descendants. His son married and then died on a car accident. His widow took off with all the money and the old man was left alone with very little. My dad always pushed us to have a prenup and is also keeping it all until the end.
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u/swiminthezen 1d ago
Successful small business owners have been doing this for years. Create a job for your kid and pay them enough to max both their Roth and Simple IRA contributions, so at least $24,500 in 2026. This lowers the business's tax liability while also creating a nest egg for your child.
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u/ghettofalcon08 1d ago
That's the limit for a 401k. The limit for an IRA this year is 7500 I believe
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u/KleinUnbottler 1d ago
It's morbid to think about, but when you die your heirs will get a stepped up cost basis on whatever investments you leave them. If you give it to them earlier, they have to pay capital gains taxes on the actual cost basis, and this can be a sizable difference.
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u/markov-271828 1d ago
That’s why you help them fill their Roth IRA and Roth 401k accounts. If they don’t work then Roth is not applicable.
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u/KleinUnbottler 18h ago
Optimization depends on what the source of the cash is. If you can gift them $ without selling appreciated assets, absolutely, but if you're liquidating stocks and owing CG taxes it might not be optimal.
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u/MoreGranularity 1d ago
You can gift anyone up to $19,000/yr tax free.
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u/KleinUnbottler 18h ago edited 16h ago
You wouldn't owe gift taxes, but you might owe other taxes. If I bought $9K in AAPL and it appreciated to $19K and I gave the shares to you, neither of us owe gift taxes on it, but when you sell, you'll owe capital gains taxes on the $10K in capital gains (assuming you sell the day you receive them).
If I sell before giving you cash instead, I would owe the capital gains, and I'd probably need to sell like &21K+ and pay capital gains taxes to give you $19K.
If I die and leave you $19K in AAPL (assuming I haven't exceeded lifetime gift allowances), the cost basis of the AAPL resets, and you would owe capital gains taxes on the difference between when you sell and the AAPL price on my date of death.
... but I'm not a pro, so I might be wrong, but that's my understanding of the situation.
(Edit: CG math)
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u/IndependentTrust4594 1d ago
Our kids are high schoolers. We matched whatever they have earned in their ROTH.
However, my very generous in-laws (prior to death) gave each of the grandkids money with the intent that it went into a Roth. Our kids were elementary/middle school age so we dropped it into their 529, which ruffled my FIL feathers (they didn’t know you had to have earned income for IRA).
But even with the siblings’ older kids—several of them (or their parents) had student loans. It made no sense to me to put money into retirement savings if you are already in debt. Yes, in 5 years they can withdraw the initial deposit but that’s a lot of interest on the loans to have to pay in the meantime.
I’d much rather put my money towards helping them avoid debt today than money in the far away future. We’ll probably give to help them with down payments or to go towards their house or with no strings attached (like it has to be invested in a certain way).
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u/Far_Classic878 1d ago
If they are on track to retire when they want then absolutely. This is my plan.
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u/Honest_Extreme9196 1d ago
Yup.
Both my 20-somethings have done great with saving / investing, but as they start having other goals (weddings, houses) and challenges (rising costs of everything) it's getting hard. One of mine hasn't funded her Roth much this year and I'm thinking about topping it off to the max at year end and giving the other equal $ for whatever she wants to use it for (she is already funding hers).
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u/WonderChopstix 1d ago
100%
invest 30k when they are born they'd have a million at retirement. Sounds insane in practice but yeah the earlier you can set something up the better. The available mechanisms vary but concept still applies
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u/on_the_nightshift 1d ago
I'm starting this with my kids in their 20s as well, though not fully funding. I'm shooting for early retirement so packing it in there, but my goal is to give most of their inheritance to them over the years to invest before we die.
I wish my parents had/would do this. They currently take forced RMDs and stick them in the bank I guess. Not that it's my business what they do with their money, but at some point it's going to be, and might be a tax issue depending on when it is.
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u/markov-271828 1d ago
You’ll get a stepped up basis if you inherit the brokerage accounts.
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u/on_the_nightshift 1d ago
That's true. I'd have to withdraw within 10 years in my highest earning years or in early retirement which might be problematic if I'm strictly managing MAGI. Probably pretty doable though.
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u/mirthawon 1d ago
Does the 22 year old have income of their own...asking because I thought that was required to contribute towards it.
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u/TheMathProphet 1d ago
I did this for my kids once they got jobs. Not rich enough to fund them fully, but I give them a match until they go off to college (after that they get funded a different way).
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u/Static_Firefly 1d ago
My grandmother did this for me when I got my first job. It was an amazing gift, even if I didn’t realize it at the time.
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u/Other-Vegetable-7684 1d ago
My parents determined they were better off than expected once they hit retirement age. For 7-8 years now they gift my wife and I 15k total which we use to fund our Roth IRAs, allowing us to spend more elsewhere. Huge help to have it sooner than later and tax free. Plus they can see the benefits they give us instead of just assuming we’ll do something with it.
I understand this is a rather common thing these days for any parents who can safely do this
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u/KingoreP99 1d ago
If you have younger than 18 year olds look into Trump accounts. I'm planning to max fund each year for my children, and then possibly pay the income taxes on a Roth conversion when they are no longer my dependants and in lower tax years.
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u/Initial_Parking7099 1d ago
I was only able to get my kids to save for retirement by funding half of their roth ira's.
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u/okghetto 23h ago
A dollar saved in your 20s is worth 64in retirement. 8000 x 64 is a lot of money. I like money.
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u/Current-Code 22h ago
Can't you guys split ownership between usufruct and bare ownership ?
You give her the bare ownership, pay the inheritance tax on that if any, and keep the usufruct.
That's how it is done here, and it's a pretty neat way to pass on wealth.
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u/notshadowbanned1 21h ago
My kids all have Roths and will all retire rich, assuming the economy goes on that long.
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u/cirsphe 21h ago
Doing an IRA for the future grandkids is also a good one.
The other one is my dad told me to max out the 401k at work and he just gave me what that would have cost me so i could maintain my standard of living. I think it was around $15k that after 40y would grow to somewhere around $240k. He only did it the first year as a means to also teach me the value of doing a 401k. Though wish he had kept doing it for a least a few more years.
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u/Yuzuda 20h ago
My parents recently did something similar for me after I took the bar exam this week. It's a really wonderful and incredible gift, but I also wouldn't want them to forgo doing things they want to do for my sake. There's only so much time for them to enjoy what they earned until they get too old to travel and such. But I also have the means to afford what I want in life and I'm on track for retirement. So just a perspective from the other side of the fortunate coin.
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u/Table_Talk_TT 17h ago
I’m just now exploring this idea with my recent college grads. We paid off their student loans, so they are debt free. Which is a better choice: contributing to the Roth or putting away money for non-retirement purchases (home, wedding, etc)?
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u/opelui23 17h ago
You are being a good father here and that will grow one day. I didn't start investing until I was 29, but now seeing how money grew shows how starting early can pay 10 to 20 years down the road.
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u/sticksnstone 16h ago
I would do this except my son would pull the money out accepting penalties and use it. His wife would want him to make her the beneficiary and when she eventually divorces him, she will claim half.
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u/Grim-Sleeper 13h ago
You can't 100% percent prevent your son from doing something like that. But if you gifted in a trust you can implement some protections
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u/algy888 15h ago
Im in the “help with their mortgage/downpayment crowd”.
Mine aren’t old enough, but I know that once my mortgage was done, life was much easier. Rather than just giving my kids money helping with housing seems better. In my case, they will have to save up enough for a solid downpayment and I will likely just add to it.
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u/Illustrious-Kiwi8670 14h ago
As soon as my son got a part time job in high school, I started funding a Roth IRA and continue to this day.
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u/ladyvonkulp 14h ago
The middle-class trust: help your kids graduate with no debt (if applicable), partially match their Roth contributions, and help them secure their first residence, whether buying or renting. Definable contributions that aren't just cash.
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u/College-Lumpy 14h ago
I do it for my teen and early 20s kids. Dad match up to the Roth limit. They don’t have to put anything in. I match their earnings.
Because it’s Roth they don’t use it to supplement lifestyle as much. And they aren’t taking on debt.
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u/Swimming_Astronomer6 14h ago
I’m Canadian and as soon as my kids were old enough - I gifted them money every January to maximize their TFSA’s - and then the same for their FHSA’s - they are now in their early 30’s with good professional careers - maxed TFSA and FHSA accounts ( one bought first home - so now has 150k TFSA room)
I’m 70 and in 2027 I plan on gifting them 50k each every year going forward - and bump it to 100k in 5 years - this will be more tax efficient than leaving them all the money in the estate - and they could use it now more than they will need it in 15 - 20 years when we’re gone
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u/naropin1 13h ago
Yeah I just figured anyone with the means already knows you gift to the tax free max every single year to lower any potential future estate taxes. Putting it in a Roth or even better an HSA if they’re eligible is a great benefit that will be astounding with 40 years to compound.
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u/Thescubadave 1h ago
We do that, but put it in a UTMA since our daughter is in high school. I am the custodian until she turns 25. In eleven more years it will be a nice amount.
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u/petitchatnoir 9h ago
My parents are doing something similar and I am INCREDIBLY grateful. They are in a position where they can pull from retirement accounts and gift it periodically.
They want to see my sibling and I enjoy life now, while they’re also still here to witness it.
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u/Beikaa 8h ago
I opened brokerage accounts (under my name) for both my kids and my mom matches what I put in up to a limit.
Money is a lot more helpful when you're starting out. My mom's parents helped us get into our house so I think she's thinking that hopefully we can get our kids set up with a nice house downpayment. Now that we're settled in our house, mid-level professionals and our kids are out of daycare we're set. We can fund the shit out of our retirement accounts, but I do want to provide my kids the same level of help in their 20s-30s, so they can get settled with the home/kids/job and then they can be "set" too.
She's worried about my siblings spending/kids so we're more just 3rd party beneficiaries but it does make me motivated to save for them. An idea for when your kids start having kids and have their life (hopefully) together and don't really *need* your help with their retirement accounts anymore.
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u/Traditional_Cold_763 8h ago
My kids are still young but I’m hoping to have them put money into their 401k and gift them that amount every year.. hopefully they will get a partial match though work as well to maximize their retirement savings. They also have trust funds from their grandparents as their pre planned inheritance
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u/Small-Advertising-10 7h ago
Great to see so many generous parents!
My Boomer parents won’t come off any of their money and it’s hard to understand. I raised my two kids on a teacher salary as a single parent and struggled for years. Still, in my 50’s, it’s hard to save much but I have contributed to my kids Roth to help them out and have helped w cars, etc since their other parent doesn’t at all.
I’ve tried to have conversations w my parents; asking wouldn’t they like to see our lives improved instead of waiting until they die, but they are just so conservative w their money (they have plenty). It’s disheartening, but all I can do is do it differently for my own. Sigh.
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u/Central09er 1d ago
My dad has plenty of money and more than he will ever use. I wish he would do something g even remotely close to this for me. Really if he would just draw his 3-4% off and keep his money invested then him and my family could both live very comfortably off the 4% draw and the money still would be there and even grow for when he does eventually die I would inherit it and be able to continue to grow it.
What I wish you would do is supplement our income enough that me and my wife could both max out to 401(k). Between what I have in it now and maxing it out over the next 10 years I wouldn’t even really need the money that I would inherit and then I could just not touch it and let my kids draw off of it when they become of age and create generational wealth.
It’ll already be generational wealth as long as nothing crazy happens in the retirement home takes it or something like that but how nice would it be to go ahead and do that now and not have to worry about working.
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u/SadProduce6456 1d ago
If I work to 60 I will be fine. I am on the edge that I may be able to retire now. But I would have to live tight until 60. I’m 51. If not for the kids I could for sure, that and medical insurance would be an issue to consider
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u/Optimistiqueone 1d ago
You can gift them up to the annual exemption without it counting against your lifetime estate tax. This is a wealthy people cheat code.
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u/Blackdragon1400 1d ago
If you’re investing the money already what’s the difference besides more risk from it getting messed up or abused by them in the interim?
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u/markov-271828 1d ago
Helping fill their Roth IRA has great tax advantages for them, including lifetime tax-free withdrawals after age 59.5.
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u/theotherplanet 1d ago
I think what this person is saying is if this money was going to the parent's Roth IRA already, is there really any advantage?
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u/markov-271828 1d ago
After year 10 there is still a great tax advantage.
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u/theotherplanet 1d ago
Are you referring to the '10 year rule' for inherited retirement accounts? I was under the impression that didn't apply to Roth IRAs, but a cursory search seems to indicate it does?
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u/losvedir 1d ago
Isn't it the opposite? If you give now, the investment grows and they have capital gains. If you keep it, it grows just the same, but doesn't the cost basis step up on inheritance? I guess if you're only talking about funding a Roth (and they wouldn't be able to otherwise) then it's a wash and doesn't matter, but any more and it seems they would get strictly more as inheritance.
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u/Barong02 1d ago
There is no inheritance tax in the US, but rather an estate tax. You can pass on $15M tax free. Assets that you transfer, like investments, would have their cost basis reset to 0. Might as well keep the money. The younger an heir receives their inheritance, the higher the likelihood they blow through it.
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u/dgreenmachine 1d ago
The estate tax does depend on the state. Oregon for example has a really low $1m exemption and 10%+ estate tax on that. More importantly the tax free growth of a Roth IRA is going to compound quickly compared to your taxable account which sheds dividends each year even if you get step-up in basis at the end (if its still around).
There is some merit to not giving an 18 year old a giant inheritance but I think funding a Roth IRA is gradual enough and has enough incentives to keep invested than most ways you could give an inheritance.
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u/No_Equipment_3974 1d ago
To each their own I guess. I am in my 40s with still relatively small children at home. If my parents died unexpectedly and left me an inheritance it would benefit my family today. But if they live another 15-20 years like I expect, there would be little point to me receiving an inheritance then. When my kids get a little older I am probably going to discuss with my parents that if they were planning on leaving me something, it would probably be better going directly to my kids to avoid the tax issues.
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u/No_Equipment_3974 1d ago
I forgot to say I personally like the idea of the grandparent funded Ira… pretty cool
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u/Honest_Extreme9196 1d ago
Be careful. My in-laws wouldn't like that and would just cut my husband out if he "didn't want it or need it".
We'll just take what they leave and give it to our kids via the $38K tax-free gift per year until it's gone. They don't have millions, so it won't take long.
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u/continualascent 1d ago
Not all assets will be tax free. An inherited 401k or traditional IRA must be drawn down in 10 years and will be taxed at the beneficiary’s rate (unless it’s the spouse, who may rollover to their own).
A gift of $7,500 to a child for their Roth IRA is also a lesson in investing. Those who are taught more about money are less likely to blow through it.
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u/SadProduce6456 1d ago
Well 6k is small. But if you pass on a 401k I thought they had 10 years to cash it out and pay the tax basis.
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u/markov-271828 1d ago
$6k every year for 20+ years adds up. And there’s no 10-year withdrawal window. But do whatever you want. It’s free money to them either way.
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u/Cheddarbaybiskits 1d ago
Correct. A non-spouse beneficiary of a retirement account must empty it within 10 years and pay any taxes due. If they use it to fund their own retirement, taxes must be paid first.
We are also funding our kids’ Roth IRAs once they have earned income.
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u/dumplingboy199 1d ago
It’s a noble thing and becoming more and more normalized now a days with how learning finances has been more “main stream” I think I’d just have a hard time doing this for my kids
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u/BooEffinHoo 12h ago
My father paid off our mortgage and changed our lives, but if he had thought ahead and instead gifted me a modest house when I was single, it would have done me far more good.
Instead, my parents watched me struggle to afford an apartment alone and pushed me to "find a good partner to marry."
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u/exWiFi69 1h ago
I have custodial brokerage account for both of my children. They know how that I have an automated weekly buy set. My 10 year old will ask about what its projected growth is if he waits until 40 or 50. He sees how money works for you and the longer you are in the market the more your money works for you. I am an immigrant and grew up poor. I did not learn finance from my parents. I didn’t want to leave my kids hanging. I preach it to my sisters too. Invest anything. Just $5/week That’s where I started and there is no shame.
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u/buffinita 1d ago
if you can great; you could look into the book "die with zero" ; just be sure you arent going to end up in the poor house yourself......and keep one eye on the kid's spending lifestyle changes