Author Topic: What should I do with ALL THIS MONEY??  (Read 3200 times)

oldfierm

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What should I do with ALL THIS MONEY??
« on: March 07, 2017, 11:25:35 PM »
To get right to the point, I'm very happy with my current investments, debts, etc.  Maxing out TSP to the tune of 54K this year (due to working in a combat zone) and also have maxed Roth IRAs for myself and my wife.  No debt other than the condo we rent out. 

So here's where the question comes in.  My grandmother passed away a few years ago, leaving my parents (who were born Mustachians) what must have been quite a bit of money, because now they are giving it away to their kids, 10K per year per person.  I can find plenty of places to put the 10K for myself and my wife, but I recently had a baby.  I just found out that my parents intend to do this for my 4-month old every year as well. 

THIS IS AWESOME, but I'm not quite sure what to do with the money.  I want it to be for him and his future, so my first thought is 529 for college expenses.  But I have already transferred the post-9/11 GI Bill to him.  I maybe will have one other kid, but certainly not more than two total. 

This is an awesome problem to have, but I fear that will be TOO much money for a 529, especially if they give that kind of money to a second kid as well.  My fear of incurring 529 10% withdrawal penalties is pushing me towards simply investing the money in a taxable account and calling it a day.  What do you guys think?  What would you do?  I know there are exceptions for the 10% penalty, so am I over-worrying?  Any thoughts/advice are greatly appreciated. 

ltt

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Re: What should I do with ALL THIS MONEY??
« Reply #1 on: March 08, 2017, 05:13:36 AM »
We have never invested in any 529 plans for our children, although we have set money aside for their college expenses over the years; but I do believe people on this board love them.  We have one that started college last year.  We have just put money into taxable accounts for our children.  It's worked out well, no problems.  It's been simple to sell shares when needed to pay for college expenses.  My concern has always been if we had children who wouldn't want to or were not able to go to college for whatever reason, what would happen to the money?  So we did the taxable accounts, and if any of them decide not to puruse higher education, we will give them the money to be used toward home ownership/housing. 

This is very generous of your parents. :)

Laura33

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Re: What should I do with ALL THIS MONEY??
« Reply #2 on: March 08, 2017, 05:51:41 AM »
Generic Vanguard account.  We did what you are thinking of:  we saved a specific amount in a 529 (up to our state tax deduction), and then we saved a little more in Vanguard.  We are pretty confident that we will spend the total that is in the 529s, and we have extra that we can use for college if we need it and for ourselves if we don't.

Congrats, btw -- that's awesome.

ShoulderThingThatGoesUp

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Re: What should I do with ALL THIS MONEY??
« Reply #3 on: March 08, 2017, 06:35:30 AM »
You can set up a UTMA account for him so he's given the money directly, and set it so it's under his control when he turns 21. That is how U handle monetary gifts to my daughters.

boarder42

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Re: What should I do with ALL THIS MONEY??
« Reply #4 on: March 08, 2017, 06:56:56 AM »
man ... first world problems.

i'm in a similar boat except my parents earned all of their's. they already give us 10k per year.  i'm sure our yet unborn children will recieve money as well in the future.  my dad is pushing the RMD levels at which point he will increase his contributions to my brother and i.  we just sock it away in taxable accounts.

Johnny Aloha

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Re: What should I do with ALL THIS MONEY??
« Reply #5 on: March 08, 2017, 07:17:53 AM »
One aggressive move would be to open and fund a Roth IRA for him.  The trick is you have to report earned income in order to fund a Roth IRA.  So how does a 4-month old earn taxable income?

Since you have a rental property, you could (in theory) use his picture for marketing purposes next time you have a vacancy.  Then you pay him for his services, keeping the pay under the standard deduction limit so it remains tax free for him. 

Joshua Kennon had a great blog post about it here: https://www.thebalance.com/open-roth-ira-kids-358031.  I've thought about this for my kids but I'm not bold enough yet.  Note: I'm not a CPA and this is not tax advice, etc...

lthenderson

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Re: What should I do with ALL THIS MONEY??
« Reply #6 on: March 08, 2017, 08:15:38 AM »
My fear of incurring 529 10% withdrawal penalties is pushing me towards simply investing the money in a taxable account and calling it a day.  What do you guys think?  What would you do?  I know there are exceptions for the 10% penalty, so am I over-worrying?  Any thoughts/advice are greatly appreciated.

You do know that the 10% penalty is only on the earnings and not the principle? Also, if you don't use it, you don't have to withdraw it or close it upon the graduation of your child. It can be left behind for grandchildren, great grandchildren, great great grandchildren, etc. and has some estate planning benefits by reducing your taxable estate. Finally, if your child gets a scholarship, you can withdraw the amount of the scholarship tax free and spend it as you wish.

oldfierm

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Re: What should I do with ALL THIS MONEY??
« Reply #7 on: March 09, 2017, 12:06:56 AM »
Thanks guys! 

Johnny Aloha - LOL on the ROTH IRA plan!  He is a cute baby, so maybe I could use him in advertising :-)

I'm leaning toward opening a 529, but not putting the WHOLE 10k per year in it...that just seems excessive.  I'm thinking I'll put half in a 529 and then half in a taxable account that's in my name but mentally earmarked for him if he needs it. 

First world problems for reals!  I can't stomach the thought of having a kid with a TRUST or some other account that's "his" - that's just not how I was raised.  I honestly thought we were broke all growing up (we weren't, it turns out), and I think I'm a better saver because I didn't grow up thinking I was going to have things handed to me. 

OthalaFehu

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Re: What should I do with ALL THIS MONEY??
« Reply #8 on: March 09, 2017, 07:44:49 AM »
Depending on where you live back in the states, there are also prepaid tuition programs. Pay the current rates now for what will be way higher tuition later. I use a combination of these and 529s to secure college for my two kids.

MrGville

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Re: What should I do with ALL THIS MONEY??
« Reply #9 on: March 09, 2017, 07:51:27 AM »
Depending on where you live back in the states, there are also prepaid tuition programs. Pay the current rates now for what will be way higher tuition later. I use a combination of these and 529s to secure college for my two kids.

Asking out of curiosity, not trying to be a smart ass, what happens if for some reason you kids don't go to college or end up going to a school in a different state or a  private school?

lthenderson

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Re: What should I do with ALL THIS MONEY??
« Reply #10 on: March 09, 2017, 11:25:08 AM »
Depending on where you live back in the states, there are also prepaid tuition programs. Pay the current rates now for what will be way higher tuition later. I use a combination of these and 529s to secure college for my two kids.

Asking out of curiosity, not trying to be a smart ass, what happens if for some reason you kids don't go to college or end up going to a school in a different state or a  private school?

As long as it is a savings 529 plan, the money can be used for any accredited school in the country, public or private. The specialized 529 plan mentioned above is essentially a pre-paid in-state college plan and isn't as common anymore. I would assume you would have to pay the penalty to withdraw your money if not used in-state.
« Last Edit: March 09, 2017, 11:27:16 AM by lthenderson »