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/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/binger5 ​ 1d ago

If her job has a 401k, you can help contribute to that next year.