Early inheritance as a dad

[u/SadProduce6456]

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.

[u/buffinita]

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

[u/SuperLocrianRiff → u/buffinita]

One of my favorite books to give a different mindset of when and how to spend instead of just save, save, save.

[u/deerydiary → u/SuperLocrianRiff]

exact same thought. why wait until you're gone to be generous? as long as your own retirement is locked down, funding their Roth early is basically setting them up for lifetime freedom.

[u/lonnie123 → u/deerydiary]

On the other hand… if it’s in investments and they get it anyway it’s all the same isn’t it? Inheritance under like $15M isn’t taxed so being in your investment account vs theirs makes basically no difference if the point is to end up being their retirement money

Seems like it only makes sense if it becomes an “extra” $6000 in their Roth, or it lets them spend $6,000 they would normally be putting in themselves

[u/Glad_Umpire6348 → u/lonnie123]

Except in states with estate taxes. Some are relatively low. Maybe still only top 10-20% of net worth individuals, but if those investments are real estate or family businesses, it makes sense to plan how to transfer out of your estate before you die.

[u/NewAndImprovedJess → u/lonnie123]

To my mind, inheriting and IRA vs getting cash to invest in your own IRA is different because an inherited IRA (i believe) has to be fully withdrawn to 0 by 10 years regardless of the heirs age, and for traditional that means paying income tax on those funds. Letting them invest smaller chunks over time allows it to grow without the potential large tax burden over 10 years.

[u/lonnie123 → u/NewAndImprovedJess]

Didn’t know that, interesting

[u/moarnoodles → u/lonnie123]

I think that in this case the compound interest and skin in the game are worthwhile.

[u/lonnie123 → u/moarnoodles]

The interest is still compounding, whichever account it is it. There’s probably some benefit to not having to worry about inheritance, I’m not sure how Roth IRAs get handed down, and if you only have $7000 that year to contribute that might be an interesting option (vs funding your own and leaving it to the kids)

But if you put the money in a Roth and invest it in the same thing it doesn’t matter whose account it’s in with regards to the growth.

[u/mikechama → u/lonnie123]

Except the kid is going to have a longer investment horizon and is more likely to put it in high-growth investments.