What to do with gift earmarked for retirement

[dios.del.sol]

My mother in law wants to give my wife a $14k gift earmarked for retirement. I'm trying to figure out the best way to shield it from taxes. Given our income and our workplace retirement plans we don't qualify for a tax deduction from a traditional IRA. We could put it into a Roth IRA, but the limit is only $5500. If we contribute for both 2014 and 2015, that's $11k total. That still leaves $3k unaccounted for. An additional problem is that my mother in law really wants it to go to the Vanguard 500 index fund. This is not a bad idea, so I'm happy to go along with it. However, if we split the gift like this we would have to get investor shares instead of admiral shares, which carry a slightly higher expense.

Creative ideas anyone?

[GGNoob]

If you aren't already maxing your Roth IRA's, then putting it in a Roth is a good idea. Put $5,500 in now and another $5,500 in January. So if you put it into the S&P 500 fund, you'll hit Admiral Shares status in January. Put the rest into a taxable account and if needed, you could withdraw and deposit it into the Roth in 2016.

Advice on the fund though...you should really make sure it fits your asset allocation. The Total Stock Market outperforms the S&P 500 and would be a better fund if you are only putting it into one. You could also buy ETF's if you wanted to put it into more funds and wanted lower costs.


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[wtjbatman]

Advice on the fund though...you should really make sure it fits your asset allocation. The Total Stock Market outperforms the S&P 500 and would be a better fund if you are only putting it into one. You could also buy ETF's if you wanted to put it into more funds and wanted lower costs.

You sure about that bruh? According to Vanguard's website, the S&P 500 fund has a better 1 year, 3 year, 5 year, and since inception return than the total stock market fund. The total market fund does have a better 10 year return.

I mean, you're likely going to do well either way, but if he has to invest in the S&P 500 fund to keep the MIL happy, there ain't nothing wrong with that.

[Joel]

Could you increase your 401k contributions and then spend down this 14k?

[GardenFun]

The limit is $5500 per person, so $11000 this year for both of you. 

Or does the money have to be in your wife's name?  If so, max out her 401k/Roth IRA, and save anything remaining for next year.  You're talking a little over 2 months. 

[GlassStash]

Advice on the fund though...you should really make sure it fits your asset allocation. The Total Stock Market outperforms the S&P 500 and would be a better fund if you are only putting it into one. You could also buy ETF's if you wanted to put it into more funds and wanted lower costs.

You sure about that bruh? According to Vanguard's website, the S&P 500 fund has a better 1 year, 3 year, 5 year, and since inception return than the total stock market fund. The total market fund does have a better 10 year return.

Wrong, "bruh." Considering this investment is likely for the long-term, Logan T is correct. Your own comment acknowledges that the total stock market outperforms over 10 years. When someone asks which fund performs better, would you look to a short-term or long-term duration? /rhetorical.

[Lkxe]

Iras have to be funded by April 15th( tax day), if you wait till January, you can max both 2014 and 2015 and buy Admiral shares, assuming the funds are for her name only. The ETFs have the same expense as Admiral shares.

[wtjbatman]

Advice on the fund though...you should really make sure it fits your asset allocation. The Total Stock Market outperforms the S&P 500 and would be a better fund if you are only putting it into one. You could also buy ETF's if you wanted to put it into more funds and wanted lower costs.

You sure about that bruh? According to Vanguard's website, the S&P 500 fund has a better 1 year, 3 year, 5 year, and since inception return than the total stock market fund. The total market fund does have a better 10 year return.

Wrong, "bruh." Considering this investment is likely for the long-term, Logan T is correct. Your own comment acknowledges that the total stock market outperforms over 10 years. When someone asks which fund performs better, would you look to a short-term or long-term duration? /rhetorical.

Rude! I don't think I like your tone. Anyway, my joking by saying "bruh" aside, I am a big fan of keeping the MIL happy. If that means investing in a fund that has at times out performed the total stock market, I would be ok with that :)

[GlassStash]

Advice on the fund though...you should really make sure it fits your asset allocation. The Total Stock Market outperforms the S&P 500 and would be a better fund if you are only putting it into one. You could also buy ETF's if you wanted to put it into more funds and wanted lower costs.

You sure about that bruh? According to Vanguard's website, the S&P 500 fund has a better 1 year, 3 year, 5 year, and since inception return than the total stock market fund. The total market fund does have a better 10 year return.

Wrong, "bruh." Considering this investment is likely for the long-term, Logan T is correct. Your own comment acknowledges that the total stock market outperforms over 10 years. When someone asks which fund performs better, would you look to a short-term or long-term duration? /rhetorical.

Rude! I don't think I like your tone. Anyway, my joking by saying "bruh" aside, I am a big fan of keeping the MIL happy. If that means investing in a fund that has at times out performed the total stock market, I would be ok with that :)

My apologies, I'm sarcastic by nature. Appeasing a MIL may produce lower returns, but it's usually the best course of action (at least in my experience).

[dios.del.sol]

Joel: Good idea, but 401(k) is maxed out already.
GardenFun: Yeah, we'd like to keep it in her name. It's sort of symbolic, but my MIL wants to give a gift to each of her kids. Still, I think we can work with this idea.
Bruhs: Appeasing MIL is a good idea for sure, but I think she'd go along with the total stock market fund. I already figured we'd just rebalance around her request. I was thinking more about the Admiral / Investor issue.

I think I'll fund $11k to her Roth for 2014 & 2015, throw the rest in my Roth for now and fund the remainder to hers out of savings in 2016. I had never converted from Investor to Admiral, so I didn't realize it was so easy. Sort of a non-issue. Thanks for your thoughts.

[GGNoob]

Advice on the fund though...you should really make sure it fits your asset allocation. The Total Stock Market outperforms the S&P 500 and would be a better fund if you are only putting it into one. You could also buy ETF's if you wanted to put it into more funds and wanted lower costs.

You sure about that bruh? According to Vanguard's website, the S&P 500 fund has a better 1 year, 3 year, 5 year, and since inception return than the total stock market fund. The total market fund does have a better 10 year return.

I mean, you're likely going to do well either way, but if he has to invest in the S&P 500 fund to keep the MIL happy, there ain't nothing wrong with that.

Comparing the Admiral Shares Funds at Vanguard, TSM beats S&P 500 on 3, 5, 10-year and since inception. So I'm not exactly sure what you were looking at.

But you are right, either option would be fine. But I think the best bet is still investing it so that it goes along with his target AA. Eventually (I hope), OP is going to want to add more to those Roth IRA's, so he should pick a fund they'll want to add more to later.

Bruhs: Appeasing MIL is a good idea for sure, but I think she'd go along with the total stock market fund. I already figured we'd just rebalance around her request. I was thinking more about the Admiral / Investor issue.

I think I'll fund $11k to her Roth for 2014 & 2015, throw the rest in my Roth for now and fund the remainder to hers out of savings in 2016. I had never converted from Investor to Admiral, so I didn't realize it was so easy. Sort of a non-issue. Thanks for your thoughts.

Ya, the admiral/investor thing is a non-issue. You can convert it yourself after it's over $10k or it will eventually convert itself.

Good idea to just toss it into your IRA and fund hers out of savings in 2016.

[Nords]

My mother in law wants to give my wife a $14k gift earmarked for retirement. I'm trying to figure out the best way to shield it from taxes.
Creative ideas anyone?

Just to be clear here, you know that the $14K gift is not reportable as income and is not taxed, right?  Your MIL could gift $14K to each your spouse, you, and your kids and you still wouldn't have to report the income or pay taxes on it.

But perhaps you already know that and you're just trying to figure out the best way to shield the investment gains from taxes.

[dios.del.sol]

My mother in law wants to give my wife a $14k gift earmarked for retirement. I'm trying to figure out the best way to shield it from taxes.
Creative ideas anyone?

Just to be clear here, you know that the $14K gift is not reportable as income and is not taxed, right?  Your MIL could gift $14K to each your spouse, you, and your kids and you still wouldn't have to report the income or pay taxes on it.

But perhaps you already know that and you're just trying to figure out the best way to shield the investment gains from taxes.

Exactly. I'm clear on that bit. Just trying to shield the gains from taxes. I suppose over one year it's a fairly academic issue - 25% of a relatively small number... but it all adds up.