Author Topic: How to handle taxes many years from now  (Read 3149 times)

sdotsen

  • 5 O'Clock Shadow
  • *
  • Posts: 1
How to handle taxes many years from now
« on: August 22, 2015, 11:58:49 AM »
I am putting $100 towards a mutual fund each month for my 2y/o daughter. The goal is to "give" it to her when she turns 18. (We also have a 529). If/when I decide to sell and cash out in 16yrs, how the heck do I handle the tax portion? If I'm buying every month, I'm thinking the tax stuff would be complicated no?

Druid

  • Stubble
  • **
  • Posts: 103
  • Age: 39
  • Location: California
Re: How to handle taxes many years from now
« Reply #1 on: August 23, 2015, 08:44:17 AM »
You will have to pay capital gains when you sell it, but she can recive the money tax free as a gift. Alternatively if it in her name you will still have to pat taxes under the kiddie tax rules. A better approach is to wait for your daughter to get old enough to do chores and pay her cash and give her 401k Roth matching for her hours "worked".

forummm

  • Walrus Stache
  • *******
  • Posts: 7379
  • Senior Mustachian
Re: How to handle taxes many years from now
« Reply #2 on: August 23, 2015, 09:32:49 AM »
You could also just keep the funds until you die and then they are passed on tax free unless you have an enormous estate.

ben4prez

  • 5 O'Clock Shadow
  • *
  • Posts: 15
Re: How to handle taxes many years from now
« Reply #3 on: August 27, 2015, 08:40:12 AM »
@Druid -excuse my ignorance, but could you describe the 401k roth match you mention for kids chores?  how would that work in practice?  Getting up to speed on all these interesting options...

Cpa Cat

  • Handlebar Stache
  • *****
  • Posts: 1697
Re: How to handle taxes many years from now
« Reply #4 on: August 27, 2015, 08:46:47 AM »
I am putting $100 towards a mutual fund each month for my 2y/o daughter. The goal is to "give" it to her when she turns 18. (We also have a 529). If/when I decide to sell and cash out in 16yrs, how the heck do I handle the tax portion? If I'm buying every month, I'm thinking the tax stuff would be complicated no?

Your brokerage firm is required to track your basis on new purchases. Each year, they will likely send you a consolidated 1099, which includes dividends, interest and sales to be reported. If you make a sale, it will appear in the sale section, and they will provide you with the basis, the date of purchase, date of sale and gross sales amount, plus track wash sales.

It's not too complicated. Everything is tracked by their computer.

MDM

  • Senior Mustachian
  • ********
  • Posts: 10768
Re: How to handle taxes many years from now
« Reply #5 on: August 27, 2015, 11:25:38 AM »
@Druid -excuse my ignorance, but could you describe the 401k roth match you mention for kids chores?  how would that work in practice?  Getting up to speed on all these interesting options...

See http://forum.mrmoneymustache.com/investor-alley/where-to-start-a-child's-roth-ira-with-very-low-income
and
http://jlcollinsnh.com/2011/06/08/how-i-failed-my-daughter-and-a-simple-path-to-wealth/
and
http://blog.famzoo.com/2011/04/pave-road-to-retirement-for-your.html
(and all the links within those) for what I think Druid has in mind.

MDM

  • Senior Mustachian
  • ********
  • Posts: 10768
Re: How to handle taxes many years from now
« Reply #6 on: August 27, 2015, 11:32:57 AM »
The goal is to "give" it to her when she turns 18. ... If/when I decide to sell and cash out in 16yrs, how the heck do I handle the tax portion?

There are cautions about UTMA/UGMA accounts, particularly regarding how they might affect college aid.  But, if you are ok with those considerations, such an account can work out well tax-wise.  If most of the growth comes from capital appreciation there will be little or no tax due while your daughter is growing.  Then, when she first files her own tax return as not-your-dependent, her income is likely to be low enough that she can sell the shares and pay no tax at all on capital gains.  Of course, that also depends on the tax law at the time. 
« Last Edit: August 27, 2015, 01:42:23 PM by MDM »

ben4prez

  • 5 O'Clock Shadow
  • *
  • Posts: 15
Re: How to handle taxes many years from now
« Reply #7 on: August 27, 2015, 01:37:54 PM »
@Druid -excuse my ignorance, but could you describe the 401k roth match you mention for kids chores?  how would that work in practice?  Getting up to speed on all these interesting options...

See http://forum.mrmoneymustache.com/investor-alley/where-to-start-a-child's-roth-ira-with-very-low-income
and
http://jlcollinsnh.com/2011/06/08/how-i-failed-my-daughter-and-a-simple-path-to-wealth/
and
http://blog.famzoo.com/2011/04/pave-road-to-retirement-for-your.html
(and all the links within those) for what I think Druid has in mind.

thanks!