Author Topic: How to best save annual $14,000 gift from mom  (Read 1618 times)

DCSaver659

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How to best save annual $14,000 gift from mom
« on: July 30, 2018, 08:09:05 AM »
Hello,

First time posting. Looking for some thoughts on a problem I'm fortunate to have.

I'm trying to reach financial independence in the next ten to fifteen years (currently 28). But if I can do get there sooner, so much the better.

My question is what do you think is the best way for me to divide up my savings?

Background:

Salary: $55,000
Debt: $0
Condo: $50,000 (all cash purchase). Cost is low because it is income limited place.
HOA: $1076 (includes water, property taxes, and underlying mortgage; great deal for the area I'm in)
401k: ~$10,0000 (10% of salary + 6% match from employer)
Taxable investments: ~$60,000 (in Vanguard lifestrategy moderate growth)
Roth: ~$25,000 (in Vanguard retirement 2055). I set this up on my own; not a rollover or anything. Perhaps I didn't need to?
After-tax savings: $375 to Roth if needed otherwise to my taxable, $115 to bank savings account (for flights and occasional luxury like clothes).
Spending: My annual spending is around $27,000.
I've got emergency fund
Gift: My mom gives me $14,000 per year (IRS limit). Wants to give it to give me part of inheritance while I'm young. I save 85-95%. I donate a portion and set aside remainder for travel. I realize my good fortune with this and am doing my utmost to put it to good use.

Currently, I've been saving $5500 from my mom's gift to IRA, then saving the rest in my taxable account.

Do you all think that is the best way to divvy up this money? I'm not looking to do a 72(t) or anything when I am FI. Ideally would like to live off taxable and have my 401k and Roth as backups when I get to 59.5, then tap my Social Security at 67. Open to advice on that too!

Please let me know if I've been unclear! Been a long time since I posted on a forum.

Thank you!
« Last Edit: July 30, 2018, 09:44:36 AM by DCSaver659 »

jlcnuke

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Re: How to best save annual $14,000 gift from mom
« Reply #1 on: July 30, 2018, 10:24:45 AM »
From Bogleheads, but matches up with most lists (including the priority list from here iirc)

Quote
Here is a general account funding priority that often works well for many people (not all points will apply to everyone):

Contribute to the work-based plan (401(k), 403b,) enough to get the full employer match (the match is like free money, your best possible investment),
Pay off high interest debt (a guaranteed high return, the next best thing to free money),
Contribute to a Health Savings Account (HSA) if available (unlike many other tax deductions, there are no income restrictions to contribute to an HSA),
Contribute the maximum to an IRA, traditional or Roth (or backdoor Roth technique), depending on eligibility and personal circumstances,
Contribute the remainder of the maximum employee contribution to the work-based plan,
Contribute to a taxable investing account,
Contribute to non-deductible IRAs (may be better than taxable in certain circumstances) or annuities.

As you don't seem to have high interest debt, you can ignore that one. 401k for match, then HSA if you have one available, then max out Roth, then max out 401k, then taxable.

You can pull from Roth contributions when you first FIRE and start a Roth conversion ladder at the same time. No need for 72(t) that way, though there's really nothing wrong with going 72(t) either.

robartsd

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Re: How to best save annual $14,000 gift from mom
« Reply #2 on: July 30, 2018, 10:45:54 AM »
The IRS annual exclusion limit only really applies if your mom is loaded. Giving more than the annual limits is only subject to taxation after you've exhausted your lifetime exclusion (currently over $11 million). Use of the gift tax lifetime exclusion does reduce the the estate tax exclusion available upon death. I suspect that your mom isn't loaded to the point where the lifetime exclusion is important, but staying under the annual exclusion keeps the tax filing simpler (no need to track the lifetime exclusion used) - I think it's great that your mom wants to give money she knows she won't need to you now.

BTW, the annual exclusion limit was increased to $15,000 - if your mom is loaded and wants to do all she can to avoid estate taxes, she'll be interested in knowing this.

DCSaver659

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Re: How to best save annual $14,000 gift from mom
« Reply #3 on: July 30, 2018, 11:00:29 AM »
Didn't know it went up! Thanks!

FatFI2025

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Re: How to best save annual $14,000 gift from mom
« Reply #4 on: July 30, 2018, 09:04:04 PM »
Unless you have specific goals, consider bumping up your 401k contributions. Do you have access to a Roth 401k?

Finances_With_Purpose

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Re: How to best save annual $14,000 gift from mom
« Reply #5 on: July 31, 2018, 10:25:45 PM »
Just stopping by to say kudos to you for investing her gift and seeking to use it well: that honors her.  It's encouraging seeing someone who receives a gift using it well. 

I would max tax-advantaged space then move on to Roth or taxable from there, depending upon your situation.  You might use the gift to offset your income so you can max your tax-advantaged accounts at work.  Regardless, good for you. 

DCSaver659

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Re: How to best save annual $14,000 gift from mom
« Reply #6 on: August 01, 2018, 07:50:30 PM »
Thank you all for the advice and taking the time!

Definitely going to bump up my 401k contribution a couple of percent next month.

bwall

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Re: How to best save annual $14,000 gift from mom
« Reply #7 on: August 02, 2018, 08:21:38 AM »
Just stopping by to say kudos to you for investing her gift and seeking to use it well: that honors her.  It's encouraging seeing someone who receives a gift using it well. 

Regardless, good for you.

+1

Also: If you save well, then one day perhaps you can be the person to be making generous gifts to the next generation.

DCSaver659

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Re: How to best save annual $14,000 gift from mom
« Reply #8 on: August 06, 2018, 09:49:01 AM »
Update: Going to increase my 401k contribution to 20% for a total of 26% with my employer match. 20% is highest I feel comfortable going. I like to set aside money to savings every month for travel and other larger non-budgeted expenses (bike tuneups, bike gear, etc). Will use gift to make annual $5500 contribution to Roth IRA and will throw another $5500-7000 from the gift to my taxable and set aside the remainder in savings for donations, travel expenses, and other occasional luxuries.

Definitely planning to pass some on to any kids I have!